Fiscal Policy

Question 1

What is fiscal policy?

Answer 1

Fiscal Policy refers to the changes in the government spending and taxation.

Question 2

What is public expenditure?

Answer 2

The government spending.

Question 3

At what levels do the government carry out its fiscal policy?

Answer 3

1. National
   2 . Local

Question 4

What comprises of government spending?

Answer 4

1. Interest on national debt
2. Education
3. Healthcare
4. Transport
5. Defense

Question 5

Who are the major beneficiaries of government spending?

Answer 5

1. Retired
2. Disabled
   3 . Unemployed

Question 6

What is a budget statement?

Answer 6

The government plans out its spending and taxation for the financial years in a budget statement.

Question 7

Why does the government deliberately alters its balanced budget?

Answer 7

To influence the economic activity.

Question 8

Why does the government increase the aggregate demand?

Answer 8

1. For economic growth
2. For employment

Question 9

How is aggregate demand raised?

Answer 9

1. By raising tax thresholds
2. Reducing tax rates
3. Reducing the items taxed

Question 10

How does cut in tax rates or taxation help in economic growth?

Answer 10

The reduction in tax such as the income tax will increase the disposable income of the consumers ,
1. Increasing their spending.
2. This increased spending by the consumers raises investment.

Question 11

What is Reflationary fiscal policy?

Answer 11

The expansionary fiscal policy

Question 12

What is deflationary fiscal policy?

Answer 12

The contractionary fiscal policy

Question 13

Why does the government may adopt deflationary fiscal policy

Answer 13

To curb inflation

Question 14

What is old conception of neutrality of public finance?

Answer 14

The concept of the neutrality of public finance, also known as fiscal neutrality, refers to the idea that government fiscal policies, particularly taxation and public spending, should aim to have minimal distorting effects on economic decision-making and resource allocation in the private sector. In other words, fiscal policies should ideally be designed in a way that they do not significantly influence individuals’ and businesses’ economic choices.

Question 15

What is the Functional Public Finance?

Answer 15

Functional finance is an economic theory and approach to public finance that emphasizes the use of fiscal policy, including government spending and taxation, to achieve specific macroeconomic goals. Functional finance departs from the idea that government’s primary role in economic policy is solely to maintain a balanced budget. Instead, it suggests that fiscal policy should be used actively to achieve full employment and economic stability.

Question 16

What is the difference between the Neutrality of public finance and the Functional public finance?

Answer 16

Neutrality of finance aims for a balanced budget and minimal government intervention in the economy, while functional finance prioritizes macroeconomic stability, full employment, and uses fiscal policy actively to achieve these goals, even if it means running deficits during economic downturns. These approaches represent different schools of thought in economics and have implications for how governments approach fiscal policy and economic management.