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Fiscal Policy Instruments
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This lesson talks about the fiscal policy instruments, their mechanism and shortcomings.

Surabhi Agrawal
Rank 358 UPSC 2018, Chartered accountant and company secretary with 4 All India ranks, passionate learner and above all a positive soul.

Unacademy user
excellent course
I am not getting fourth point of shortcomings of taxation.a little explanation I need
what is govt. debt (is it public debt indeed)?,and internal and external debt means?
Ma'am what does Govt. Debt to GDP ratio signifies? Can you please elaborate?
Surabhi Agrawal
2 years ago
It means the total debt or borrowings of Govt (internal + external) as % of GDP
Vidhan Dwivedi
2 years ago
Thank you ma'am...
very nice way of explanatiom
  1. FISCAL POLICY INSTRUMENTS Presented by Surabhi Agrawal

  2. About Myself A Chartered Accountant (CA) and Company Secretary (CS) by Qualification, I love teaching and Public speaking 1. a. Have secued llIndaank4th and:sthinACCndFinalrespectively 3. Have appeared for UPSC Mains 2017 For the courses related to Monetary Policy of India, go to the following link: 4. simplified/HSN46R3Y

  3. Taxation Budget Public Expenditure Public Debt Investment policy

  4. 1. Taxation An amount levied by the government on a product, income, or activity. It affects the disposable income of people, hence affecting consumption and investment.

  5. Decrease in Tax rates Increase in Tax rates Decrease in Disposable ncome Increase in Disposable income Decrease in Consumption & Investment Increase in Consumption & Investment Increased Output and Decreased Output and Employment Employment Increased Growth and Inflation Decreased Growth and Inflation

  6. Shortcomings Low tax base - High Tax evasion Reduction in unemployment is very small. Tax rates are sometimes used for electoral gains. Hence it is not an unbiased instrument.

  7. 2. Public Expenditure - These expenditures are done in areas like education, health, infrastructure etc. - When Expenditure is more than revenue, it leads to Deficit. - It has a more direct effect in economic activity than Taxes.

  8. Increase in Public Expenditure Decrease in Public Expenditure Increase in spending capacity Decrease in spending capacity Decrease in Aggregate Demand Increase in Aggregate Demand Increased Output and Employment Decreased Output and Employment Increased Growth and Inflation Decreased Growth and Inflation

  9. Shortcomings Not possible to reduce public expenditure beyond a level - Too much increase in public expenditure may lead to huge fiscal deficits. - Delay in starting projects. Corruption

  10. 3. Investment policy Optimum levels of domestic as well as foreign investment are needed to maintain the economic growth in the economy. - Savings rate in the economy influences investment rate