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1. Stabilization of the Economy
Fiscal policy aims at stabilizing the economy during period of disturbances. In a boom, a period characterized with rising prices it seeks to siphon off the excess liquidity in the economy through increased taxation, borrowing and reducing public expenditure. In a depression when private investment is low and people have no money to spend on goods /services, the government undertakes public investment to make-up for the shortfall in consumption expenditure and private investment expenditure. This sustains aggregate demand. Fiscal policy irons out these fluctuation and put the economy back on track through tax holidays, subsidies and the provision of infrastructural facilities. Through these actions the government seeks to increase production.
2. Price Stability
The government seeks to maintain a reasonably stable general price levels. Prices must be such as to be within the interest of the consumer and at the same cover cost and yield a reasonable margin of profit.
3. Economic Growth
Prices act as resource allocating mechanism. They allocate resources among different lines of production. The economy must grow through price changes. The price must cater for the growing needs of a growing population. It must ensure that Gross National
Product (GNP) is growing faster than population.
4. Full Employment
This is a primary goal of any economic policy. But how full is full employment? And what is the trade off between fall employment and inflation? At 3% unemployment is considered consistence with full employment. While any figure above 5% is deemed adverse and calls for corrective measures. Keynes gives high priority for full employment. He advocates for substantial public expenditure and private investment expenditure. According to him only the state can undertake autonomous investment on large scale even if it entails deficit spending where government prints more money. State expenditure on public works generates more employment.
5. Redistribution of Income and Wealth
Progressive taxation tends to reduce wealth inequalities and it is used to finance transfer payment and social security benefits.
6. Equilibrium in Balance of Payments
An adverse balance of payments comes about through excess of import over exports i.e. where a country?s international debts exceed its credits. Imports can be reduced through import tariff and export increased through various export promotion schemes including
subsidies, value addition etc.
Bom answered the question on March 24, 2018 at 09:48
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