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FISCAL POLICY AN INTRODUCTION PART 1 BY AYUSSH SANGHI
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PILLARS OF PUBLIC FINANCE Fiscal and Monetary Policy are the main policy approaches used by economic managers to function in the broad aspects of the economy. Fiscal policy deals with the taxation and expenditure decisions of the government. * Monetary policy deals with the supply of money in the economy and the rate of interest.
Who is responsible for each? The Government deals with Fiscal Policy * The Central Bank is responsible for Monetary Policy. The Central Bank is responsible for Monetary Policy
What does FP involve? Fiscal Policy involves the use of: sk spending to alter macroeconomic outcomes.
What does FP involve? k Fiscal policy is composed of: tax policy, expenditure policy, investment or ** disinvestment strategies and debt or surplus management.
What does FP involve? Fiscal policy is an important constituent of the overall economic framework of a country and is therefore linked with its general economic policy strategy.
Instruments of Fiscal Policy k Fiscal policy is carried out by the legislative and/or the executive branches of government. The two main instruments of fiscal policy are: expenditure government spends on subsidies, defines, pension etc. taxes government collects taxes in order to finance expenditures on a number of public goods and services.
Functions of Fiscal Policy Three distinct functions that operate through the revenue and expenditure measures of the government are: Allocation Function * Distribution Function
Allocation Function k Goods, referred to as: * public goods (such as national defence, roads, government administration), as distinct fromm private goods (like clothes, cars, food items), k cannot be provided through the market mechanism, i.e. by transactions between individual consumers and producers and must be provided by the government. This is the allocation function.