detail study of tools of fiscal policy

1. TOOLS OF FISCAL POLICY
GOVERNMENT
EXPENDIATURE
TAXES
DEFICIT
FINANCING
PUBLIC DEBT

2. TAXES:
This is the main tool through which the government collects money from the
public. The government collects money from the public through income taxes,
sales taxes, and other indirect taxes. Without taxes, a government would have
very little room to collect money from the public.
GOVERNMENT EXPENDIATURE:
To ensure economic growth, the government needs to spend money on projects that
matter. The projects can be creating a subsidiary, paying the unemployed, pursuing
projects that are halted in between etc.

3. PUBLIC DEBT:
Public debt is a sound fiscal weapon to fight against inflation and deflation. It brings
about economic stability and full employment in an economy.
(a) Borrowing from Non-Bank Public
(b) Borrowing from Banking System
DEFICIT FINANCING:
WHEN THE GOVERNMENT MEETS ITS BUDGETARY DEFICIT BY BORROWING FROM THE
CENTRAL GOVERNMENT IT IS CALLED DEFICIT FINANCING.
AS A RESULT OF DEFICIT FINANCING INCOME OF THE PEOPLE GOES UP AND HENCE
INCREASE IN THE AGGREGATE DEMAND.