Page 254 - DECO201_MACRO_ECONOMICS_ENGLISH

Unit 14: Macro Economic Policies: Fiscal Policy

Self Assessment Notes

Multiple Choice Questions:
9. ......................... is an effective tool of budget to influence the level of savings and investment
in country.

(a) Public debt
(b) Interest rate
(c) Taxation

(d) Open market operations
10. ......................... occurs when the spending of a government exceeds its financial savings.
(a) Budget surplus
(b) Budget deficit
(c) Market equilibrium

(d) Dissavings
11. Treasury Bills are instruments of ......................... debt.
(a) Short-term

(b) Long-term
(c) Permanent
(d) Floating
12. Which of these is not a part of internal debt?
(a) Special Bearer Bonds

(b) Treasury Bills
(c) Provident funds
(d) Suppliers' credit

13. ......................... are duties or taxes imposed on commodities imported into India.
(a) Estate tax
(b) Wealth tax
(c) Central excise
(d) Customs duty

14.4 Effectiveness of Fiscal Policy

The following aspects are crucial for the effectiveness of fiscal policy interventions:
First, the effect of a fiscal expansion depends on how the expansion is financed. This applies not
only to the short-term debt-tax mix used to finance a current increase in government expenditure,
but also - and perhaps even more importantly - to the long-term financing source, i.e., taxes
versus spending cuts in the future. The impact of higher current expenditure is strengthened
when complemented with a credible plan that ensures it is financed at least in part by future
spending cuts. Future spending cuts tend to raise current private consumption and investment

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