Understanding Fiscal Policy: Objectives and Instruments
Introduction
In this video, Minisetti discusses the concept of fiscal policy, which involves government strategies regarding expenditure and revenue to influence economic outcomes such as production, employment, and national income.
What is Fiscal Policy?
- Definition: Fiscal policy refers to the government's use of its expenditure and revenue programs to create a positive impact on production, employment, and national income.
- Government Expenditures: Examples include spending on roads, education, and public health.
- Revenue Generation: The government collects income through taxes.
Objectives of Fiscal Policy
-
Full Employment:
- The government increases expenditure on public services to create jobs.
- Reduces taxes to incentivize private sector investment and job creation.
-
Price Stability:
- During deflation, the government increases public expenditure and reduces taxes to boost demand and stabilize prices. For more on how fiscal policy interacts with inflation, see our summary on Understanding Inflation: Key Factors and Economic Policies.
-
Reduction in Economic Inequalities:
- Higher taxes on the wealthy are imposed to fund welfare programs for the underprivileged.
-
Economic Development:
- Increased capital formation and investment in underdeveloped areas to enhance income and employment. This aligns with broader economic theories, which can be explored in our summary on Understanding the Economic Theories of Thomas Mun, Physiocracy, and Mercantilism.
Instruments of Fiscal Policy
-
Taxation:
- During inflation, taxes are increased to reduce demand and stabilize prices.
- In deflation, taxes are reduced to stimulate demand and increase prices. For a deeper understanding of how taxation fits into the larger financial landscape, check out Understanding Financial Instruments: A Comprehensive Overview.
-
Government Expenditure:
- Government spending on public health, education, and social security generates income and increases aggregate demand.
- Expenditure is adjusted based on market conditions (e.g., reduced during economic booms, increased during depressions).
-
Public Debts:
- When expenditures exceed income, the government borrows money to fund public works and stimulate the economy, especially during downturns. This borrowing can be influenced by the broader context of monetary policy, which is discussed in Understanding Monetary Policy: Objectives and Instruments Explained.
Conclusion
Minisetti wraps up the discussion by summarizing the importance of fiscal policy in managing economic conditions and its role in promoting overall economic health.
Thank you for watching!
hello everyone my name is minisetti I hope you all are staying healthy today we are going to talk about meaning
objectives and instrument of Physical policy so what is Physical policy Physical policy is a policy under which
government uses its expenditure and revenue programs to produce desirable impact on production employment and
national income Physical policy is the policy under which government uses its expenditure and revenue programs to
produce desirable impact on production national income and employment as we know government do so many expenditure
for welfare of society for example expenditure on roads expenditure on education expenditure on public health
at the same time government receive income in form of taxes under Physical policy government use its expenditure
and revenue in such a way so that it can produce positive effect on national income production and employment now we
are going to talk about objectives of Physical policy first objective of physical policies full employment in
order to achieve this objective government increase their expenditure for example government increase
expenditure on school Hospital Park so that more and more people can get Employment Plus government reduces taxes
and give incentives to private sector so that they can also increase their investment and provide jobs to so many
people second objective is price stability during the time of deflation prices are very low because demand is
very low Market is very down in order to increase demand government increase public expenditure and reduce taxes as
taxes reduce demand increase demand increase prices also increase and become stable third object is reduction in
economic inequalities in economic inequalities gap between rich and poor to reduce economic inequalities
government impose more taxes on rich people and use this tax income on welfare of weaker section a third
objective is economic development in order to achieve the objective Economic Development government increased Capital
formation or we can say that government increase investment for underdeveloped country capital for formation is small
factor to increase income output and employment now we are going to talk about instruments or we can see the
tools of Physical policy first instrument of Physical policy taxation during the time of inflation prices are
very high to control inflation government increased taxes as Government increased taxes spending form is demand
of people fall as demand fall price is also full this process will continuous until price becomes stable neither too
high nor too low on the another head in case of deflation prices are very low Market is very down because demand is
very low to increase demand government reduced tax is that government reduce taxes spending increase means demand
increase and prices also this process will also continue until our price becomes stable now we are going to talk
about next instrument of Physical policy it will call government expenditure as we know government do so many
expenditure for welfare of society or for example expenditure on public health expenditure on education expenditure on
training expenditure on employment expenditure on Social Security through this expenditure government generate
income in economy when income increase aggregate demand increase output increase and employment increase but
government change their expenditure according to situation of market for example in case of Boom prizes are very
high there is already so many money in Market in this time period government reduce their expenditure on the
Netherland during depression prices are very low Market is very low down at this time period government increase their
expenditure next instrument of physical policies public debts public debts means loans taken by government public debts
Miss loans taken by government sometime government expenditure exceed from their income during this time period
government borrow money from Banks from public as well as from International Financial unit during depression
government debts are very effective because in this time period private sector don't want to invest because
demand is very low if Government take debts and use this money on a public work program or in infrastructure or do
some investment as a result demand national income and employment will increase and we can overcome from
depression this is all about a fiscal policy meaning and objective and instrument I think you got it and thank
you so much for watching this video bye take care
Heads up!
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