Fiscal Policy

    Fiscal policy refers to the overall effect of the budget outcome on economic activity. The idea of using fiscal policy to combat recessions was introduced by John Maynard Keynes in the 1930s Two main instruments of fiscal policy ‡Revenue Budget .

Three possible stances of fiscal policy are:    A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). ƒAn expansionary stance of fiscal policy involves a net increase in government spending (G > T). ƒA contractionary stance of fiscal policy (G < T .

ToAchieve desirable employment level 4.ToAchieve desirable consumption level 3. Increase in capital formation 6. To achieve desirable price level 2.OBJECTIVES       1.Degree of inflation .To achieve desirable income distribution 5.

g. land). ƒSale of assets (e. This expenditure can be funded in a number of different ways: ƒTaxation ƒthe benefit from printing money ƒConsumption of fiscal reserves. as well as transfer payments.. from the military to services like education and healthcare.   Governments spend money on a wide variety of things. .

. hybrid cars from 24% to 14%. electric cars from 8% to Nil In the food processing sector. excise duties were reduced on small cars from 16% to 12%.CHANGES IN EXCISE DUTY     CENVAT rate on all goods from 16% to 14% Excise duty was reduced from 16% to 8% on all drugs In the automobiles sector.

. Customs duty on crude and nonrefined sulphur reduced to 2% from 5% to boost domestic fertilizer production.CHANGES IN CUSTOM DUTY     Customs duty on nonagricultural products. reduced from 20% (200304)to 10%(2007-08) Duty on steel melting scrap and aluminum scrap reduced to Nil (from 5 per cent earlier).

CHANGES IN SERVICE TAX       YEAR 04-05 05-06 06-07 07-08 08-09 65000 SERVICES# REVENUE 75 14200 84 23055 99 37598 106 51301 130+ .

Fiscal Policy Statement   The gross tax to GDP ratio increased to an all time high of 11.9 % in 200708 thanks to high growth in the economy.1 in 07-08 to 17.6% .5% to 09-10 The total expenditure as a % of GDP has gone up from 15.8% in 08-09 and 9. This has declined to 10.

Monetary theory provides insight into how to craft . Monetary policy is the process by which the monetary authority of a country controls the supply of money. The official goals usually include relatively stable prices and low unemployment. often targeting a rate of interest for the purpose of promoting economic growth and stability.

 Monetary policy is referred to as either being expansionary or contractionary. and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally . where an expansionary policy increases the total supply of money in the economy more rapidly than usual.

which refers to taxation. Monetary policy differs from fiscal policy.  Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values. government spending. and associated borrowing .

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