Fiscal policy deals with a government's taxation and spending decisions. It has several components, including tax policy, expenditure policy, investment strategies, and debt management. The two main instruments of fiscal policy are the revenue budget, which consists of tax and other receipts, and the expenditure budget, which estimates revenues and expenses over time. Fiscal policy aims to influence macroeconomic indicators like employment, inflation, and economic growth through adjustments to tax rates and public spending. It can take an expansionary, contractionary, or neutral position depending on whether spending is higher, lower, or equal to revenues collected.

1. FISCAL POLICY

2. FISCAL POLICY
* Fiscal policy deals with the taxation and expenditure decisions of the
government .
* the government deals with fiscal policy while the central bank is
responsible for monetary policy. Fiscal policy is composed of several parts.
These include, tax policy, expenditure policy, investment or disinvestment
strategies and debt or surplus management.

3. The Two Main instruments of fiscal
policy :
• Revenue Budget:
The revenue budget consists of
revenue receipts of the government
(revenues from tax and other
sources)..
• Expenditure Budget:
estimating incoming revenue and
outgoing expenses over a given time
frame

4. Methods of Funding :
• Taxation
• Seigniorage, the benefit from printing money
• Borrowing money from the population or from abroad
• Consumption of fiscal reserves
• Sale of fixed assets (e.g., land)

5. Consuming prior surpluses :
• A fiscal surplus is often saved for future use, and may be
invested in either local currency or any financial instrument
that may be traded later once resources are Consuming prior
surpluses

6. How Fiscal Policy Works :
• Fiscal policy is based on the theories of British economist
John Maynard Keynes. Also known as Keynesian economics,
this theory basically states that governments can influence
macroeconomic productivity levels by increasing or
decreasing tax levels and public spending. This influence, in
turn, curbs inflation (generally considered to be healthy
when between 2-3%), increases employment and maintains
a healthy value of money. Fiscal policy is very important to
the economy. For example

7. Who Does Fiscal Policy Affect?
• Unfortunately, the effects of any fiscal policy are not the same for
everyone. Depending on the political orientations and goals of the
policymakers, a tax cut could affect only the middle class, which is
typically the largest economic group. In times of economic decline
and rising taxation, it is this same group that may have to pay more
taxes than the wealthier upper class.
• Similarly, when a government decides to adjust its spending, its
policy may affect only a specific group of people. A decision to
build a new bridge, for example, will give work and more income
to hundreds of construction workers. A decision to spend money
on building a new space shuttle, on the other hand, benefits only a
small, specialized pool of experts, which would not do much to
increase aggregate employment levels.

8. In Fiscal Policy there are three
possible positions :
• A Neutral position applies when the budget outcome has
neutral effect on the level of economic activity where the
govt. spending is fully funded by the revenue collected from
the tax.
• An Expansionary position is when there is a higher budget
deficit where the govt. spending is higher than the revenue
collected from the tax.
• An Contractionary position is when there is a lower budget
deficit where the govt. spending is lower than the revenue
collected from the tax.

9. OBJECTIVES OF FISCAL POLICY :
• Increase in capital formation.
• Degree of Growth.
• To achieve desirable price level.
• To achieve desirable consumption level.
• To achieve desirable employment level.
• To achieve desirable income distribution

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