Fiscal policy refers to a government's taxing, spending, and borrowing policies. It aims to manage the economy through manipulating levels of public expenditure, taxation, and public debt. The key instruments of fiscal policy are public revenue (taxation), public expenditure (spending), and public borrowing (loans). Governments use fiscal policy to achieve objectives like economic growth, full employment, and controlling inflation. There are two types: automatic stabilizers that operate without government action, and discretionary policies that involve deliberate changes to taxes and spending to stabilize the economy. However, fiscal policy faces challenges like the time it takes to have an effect, problems with tax policies, and the burden of public debt.
objectives of fiscal policy
,
to accelerate the rate of economic growth:
,
optimum allocation of resources
,
generally following are the objectives of a fiscal
,
equitable distribution of income and wealth:
,
full employment
,
to encourage investment
,
economic stability:
objectives of fiscal policy
,
to accelerate the rate of economic growth:
,
optimum allocation of resources
,
generally following are the objectives of a fiscal
,
equitable distribution of income and wealth:
,
full employment
,
to encourage investment
,
economic stability:
Macroeconomics 201 Answer all 25 multiple choice questions..docxinfantsuk
Macroeconomics 201
Answer all 25 multiple choice questions.
1. Which is not a function of money?
a) unit of account; b) medium of exchange; c) means of measure; d) store of value
2. Since the 1980s, it has generally been the view that the money supply:
a) is completely controlled by the central bank;
b) cannot be controlled by the central bank;
c) is completely controlled by the Treasury;
d) cannot be controlled by the Treasury
3) Which of the following is not one of the three kinds of demand for money in Keynes?
a) speculative;
b) precautionary; c) administrative;
d) transactions
4) Which of the following is not one of the ways the Fed can use to try to affect the money supply?
a) change the discount rate;
b) change the fed funds rate;
c) change the reserve requirement ratio;
d) open market operations
5) Expansionary policy is used to:
a) try to fight inflation;
b) try to decrease output, income, and employment;
c) try to increase output, income, and employment;
d) try to increase deflation
6) There is a tension between these two characteristics of banks in a fractional reserve banking system:
a) private profit seeking enterprises and susceptible to runs;
b) private profit seeking enterprises and engage in money creation;
c) engage in money creation and susceptible to runs;
d) engage in runs and susceptible to money creation
7) The liquidity trap is:
a) the horizontal portion of the money demand function;
b) when interest rates are so low people do not think they can go any lower;
c) when interest rates are insensitive to changes in the Money supply;
d) all of the above
8) The limits to KEMP are:
a) I may be insensitive to changes in i, i may insensitive to changes in Ms, Y may be insensitive to changes in I;
b) I may be insensitive to changes in Y, I may be insensitive to changes in i, i may be insensitive to changes in Ms;
c) I may be insensitive to changes in i, i may be insensitive to changes in Ms, Y may be insensitive to changes in i;
d) I may be insensitive to changes in i; Ms may be insensitive to changes in i, Y may be insensitive to changes in I
9) The limits to KAIMP are:
a) only works for demand-pull inflation, Fed may overshoot its mark and cause a recession;
b) only works for cost-push inflation, Fed may overshoot its mark and cause a recession; c) only works for demand-push inflation, Fed may overshoot its mark and cause a recession;
d) only works for cost-pull inflation, Fed may undershoot its mark and cause a recession
10) In the endogenous view of the money supply:
a) the Ms curve is vertical;
b) the Ms curve is horizontal;
c) the Md curve is vertical;
d) the Md curve is horizontal
11) Deficit Hawks view deficits as causing:
a) high investment rates; b) deflation; c) high interest rates; d) all of the above
12) Deficit Doves believe that:
a) deficits cause high interest rates;
b) high interest rates cause bigger deficits;
c) deficits are always good;
d) all of the above
13) In the functi ...
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FISCAL POLICY( FP )
FP refers to the policy of the Govt w r t
Taxation - various kinds of taxes such as
Direct & Indirect
Public Expenditure - Various Methods and
procedures of Public Expenditure
Public Debt- Various methods of Borrowing
2. Meaning: Fiscal policy is a recent development in the context
of economic regulation and management. It is similar like
monetary policy. Fiscal policy had its birth almost after World
Wide Depression in 1930.It was popularized by the
publication of “General Theory” of J.M.Keynes in 1936.Fiscal
policy has today become a major instrument employed by
Govts to achieve economic growth.
Definitions:
1.According to Arthur Smith," Fiscal policy refers to a policy
under which government uses its expenditure and revenue
programmes to produce desirable effects on national income,
production and employment”
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3. 2.According to A.G.Buehler, “By fiscal policy it
means the use of public finance expenditure, taxes,
borrowing and financial administration”
In simple fiscal policy refers to the policy of the govt
as regards taxation, public borrowing and public
expenditure with specific objectives in view.
Objectives of Fiscal policy:
1.Economic growth
2.Full employment
3.Optimum allocation of economic resources
4.Increasing rate of investment
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4. 5.Reducing inequality of income and wealth
6.Controlling inflation
The above objectives are attained through the
purposeful manipulation of public expenditure,
public debt and taxes.
Instruments of Fiscal Policy:
The govt of a country, both at the centre and in the
states, is directly responsible for implementing fiscal
policies of the nation.Govt revenue, expenditure and
borrowings are the three instruments of fiscal
policy. These three instruments are operating
through the govt budget.
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5. 1.Public Revenue –Taxation ( source of revenue)
a) Direct taxes
b) Indirect taxes
Developed countries prefer direct taxes
Developing countries prefer more on indirect taxes
2.Public Expenditure – ( spending)
a) Development expenditure
b) Non-development expenditure
Public expenditure has been increasing at a faster
rate
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6. 3.Public borrowing – ( loans )
a) Internal debt
b) External debt
c) Deficit financing
Types of Fiscal Policy:
There are two types of fiscal policy
1.Automatic stabilizers fiscal policy – Built in the
system automatically without deliberate action of
the govt.There are two automatic stabilizers viz, i)
changes in tax revenues ii) unemployment
compensation and welfare payments
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7. 2.Discretionary fiscal policy – It implies deliberate
changes undertaken by the govt of a country in the
tax rates and planned expenditures in an effort to
stabilize the economy.
Problems of Fiscal policy:
1.Fiscal policy takes time to work - delay
2.Problems in tax policy
i) Loopholes in tax laws
ii) Large non-monetized sector
iii) Exemption of agricultural income
iv) Inefficient and corrupt administration
3.Burden of public debt – internal and external
4.Deficit financing
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8. Taxation
A Tax is a compulsory contribution.
Canons of Taxations: Smith’s
Canons
Canon of Equity.
Canon of Certainty.
Canon of Convenience
Canon of Economy
Modern Canons
Canon of Simplicity
Canon of Productivity
Canon of Elasticity
Canon of Diversity
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9. Direct and Indirect Taxes
Impact - Shifting- Incidence
Direct Taxes
Merits Demerits
I Just and Equitible i Arbitrary
ii Progressive ii Unpopular
iii Elastic iii Inconvenient
iv Productive iv Evasion
v Economical v Uneconomical
vi Effective vi Narrow base
vii Certain vii Tax on Honesty
vii Educative Value
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10. Indirect Taxes
Merits Demerits
i Convenient i Unjust
ii No Evasion ii Inequitable
iii Broad Tax Base iii Inflationary
iv Social Value iv Uncertain
v Economical v Savings Affected
vi Effective vi Not Economical
vii No Pinch vii No Link between
viii Progressive Tax-Payers & Govt
viii Tax by Cruelaty
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