What is the objective of fiscal policy?

The objective of fiscal policy is to maintain the condition of full employment, economic stability and to stabilize the rate of growth. For an under-developed economy, the main purpose of fiscal policy is to accelerate the rate of capital formation and investment.

What are the two types of fiscal policy?

There are two types of fiscal policy – expansionary and contractionary fiscal policy. A government uses this type of policy to stimulate economic growth by increasing spending or lowering taxes, or both. The objective of this policy is to ensure more money in the hands of the citizens so that they spend more.

How does fiscal policy affect the economy?

Fiscal policy employs taxation and spending to influence the economy and serves to stabilize it during downturns and promote growth. Advantages include economic stabilization, targeted interventions, flexibility, and managing public goods. Fiscal measures cushion the economy during recessions, ensuring shorter and less severe downturns.