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Objective of Fiscal Policy:
Following are the Objectives of Fiscal Policy:-
1. High growth of National Income2. Fair distribution of
National Income3. High Employment4. Price Stability5. Reduction in
Regional disparities6. Discouraging production and consumption of
un-necessary goods7. Reduction in deficit of Balance of
Payments
Instruments / Tools of Fiscal Policy:
Following are Instruments / Tools of Fiscal Policy:-
A. Automatic / Built-in Stabilizer :(Non-Discretionary
Tools)
(i). Progressive Taxation(ii). Un-employment allowance(iii).
Support price policy(iv). Corporate and family savings
B. Discretionary Tools):
(i). Change in Tax rates(ii). Change in public works
expenditure(iii). Change in transfers of payments(iv). Credit
Aids
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Important Features:
1. A trade cycle is said to be completed, when it passes through
all thefour phases i.e. Recovery, Boom, Recession and
Depression.
2. There is no hard and fast rule for the time period for the
completionof trade cycle. However, it is said that it takes two (2)
to ten (10)years for its completion.
3. The recovery phase is normally longer than the recession
phase.
4. Every Boom or depression is normally at a higher level of
economicactivity than previous one.
Business Cycle and Fiscal Policy:
The Government operates fiscal policy in order to reduce the
fluctuations in
economic activity in the following manner:
(i). At the time of boom government operates contractionary
fiscal policyin which tax rates are increased and government
revenue increases
whereas government reduces its expenditure.
(ii). At the time of depression government operates expansionary
fiscalpolicy in which tax rates are reduced and government
revenuedecreases whereas government increases its expenditure in
order tomove economy out of depression.
Monetary Policy:
Monetary Policy is the policy of controlling supply and demand
for money andcredit in the economy.
Following are the functions / Features of monetary policy:
1. Creation and Expansion of financial institutions2. A suitable
interest rate policy3. Debt Management (public debt)4. Proper
adjustment between supply and demand for money5. Credit
Control:
(i) Quantitative Measures:
(a). Open market operation(b). Bank rate policy(c). Variable
reserve ratio
(ii). Qualitative Measures:
(a). Selection credit controls.
