Page 257 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes 14.5 Summary

Fiscal policy is a statement of Govt. about its projected source of revenue and expenditure,
it tells about the schedule of activities to be undertaken towards the direction of national
objectives.
Fiscal policy is the projected balance sheet of the country, prepared by Chief Finance
Officer of the country that is finance minister of the state.
Fiscal policy is implemented through Budget, which is statement of state's revenue and
expenditure. Typically budget includes four components: - Some review of economy,
Major policy announcement, Expenditure proposal, and Tax proposal.
The budget includes revenue and expenditure of the government. Revenue and expenditure
is divided in capital and revenue account. Thus receipts are broken into Revenue Receipts
and Capital Receipts, and disbursement are broken up into Revenue expenditure and
capital expenditure.
Taxation, Profits of Public Sector (Price), Domestic non-monetary borrowing, external
borrowing, borrowing from the RBI (monetised borrowing) are the main source of funds
for the Govt. Expenditure of the Govt. The Government expenditure can be divided into
non-plan expenditure and plan expenditure.

Fiscal policy is a potent tool in the hands of Govt. to regulate the economic growth.
Through the fiscal policy govt. can influences the demand, supply and even the level of
currency in the economy.
It increases the supply of currency in the economy by resorting to deficit financing thus
taking public debt. Through fiscal policy Govt. also influences the level of investment and
saving rate.

14.6 Keywords

Budget Deficit: An excess of expenditures over revenues.

Budgetary Policy: It refers to government attempts to run a budget in equilibrium or in surplus.
Crowding Out: Any reduction in private consumption or investment that occurs because of an
increase in government spending.

Escheat: When property and/or an estate is transferred to the government because a person has
died without a will or an heir to his or her estate.
Fiscal Policy: Government spending policies that influence Macro Economic conditions.

Internal Debt: It is the part of the total debt in a country that is owed to lenders within the
country.
Public Debt: In Indian context, it refers to the borrowings of the Central and state government.

Revenue Budget: It consists of revenue receipts of government and the expenditure met from
these revenues.

14.7 Review Questions

1. Explain the rationale behind framing a fiscal policy.

2. "Fiscal policy is a potent tool in the hands of government to regulate the economic growth."
Discuss.

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