1. ESSENTIALS OF
MACRO-
ECONOMICS

2. GROUP DETAILS
COLLEGE : H L INSTITUE OF COMMERCE
YEAR : FIRST YEAR
COURSE : BACHELOR OF COMMERCE
SECTION :2
GROUP NUMBER :5
TRIMESTER :3
ROLL NUMBER STUDENT NAME
170 Parth Jain
171 Pratik Jain
172 Pratik Jain
173 Priyanshi Jain
174 Purvi Jain
175 Romit Jain
176 Ruchika Jain
178 Sakshi Jain
180 Sarthak Jain
181 Shivangi Jain

4. DE-CONSTRUCTING
THE FISC : A BRIEF
REPORT ON
FISCAL POLICY

5. FISCAL POLICY
• Meaning :
Fiscal Policy is a policy under which government uses its revenue
and expenditure programs to produce desirable effects and avoid
undesirable effects on macro economic variables.
• Scope :
Scope means the coverage/ambit of fiscal policy. It has two
components :
1. Fiscal Instruments
2. Target Variables
• Components :
Fiscal Policy has 2 components, namely :
1. Revenue Budget
2. Expenditure Budget

6. FISCAL INSTRUMENTS
• These are the tools/levers, the government can use to stimulate the
target variables i.e. the macro economic indicators.
• Also known as fiscal tools, fiscal levers and fiscal handles
• Significant Fiscal Instruments include :
1. Budgetary Balance Policy
2. Government Expenditure
3. Taxation Policy
4. Borrowings

7. BUDGETARY BALANCE POLICY
• The decision to chalk out a balanced or surplus or deficit budget is
covered here.
• The decision regarding the type of budget depends on various
variables. Significant among them are –
1. Fiscal head-room available to government
2. Stage of development of the economy
3. Growth target of the government

8. GOVERNMENT EXPENDITURE
• Government expenditure includes expenditure on purchase of –
1. goods and services
2. public investment
3. transfer payments
• Government expenditure is an injection into the economy. It adds to
the overall aggregate effective demand in the economy.
• The impact of government expenditure depends upon how it is
financed and its multiplier effect.

9. Government Expenditure
Economic Growth
Stability
Employment
Recession Boom
Increase Expenditure
Decrease Expenditure

10. TAXATION POLICY
• Tax means a non quid pro quo transfer of private income to public
treasury by means of taxes (direct and indirect).
• Direct taxes includes taxes on personal incomes, corporate incomes,
wealth and property.
• Indirect taxes, also called commodity taxes, includes VAT, excise,
CST and customs.

11. Taxation
Employment Generation
Stability
Economic Growth
Boom Recession
Raise rates Decrease Rates
Taxes on production and import
Of capital intensive goods
Subsidization of labour intensive
goods

12. BORROWINGS
• Borrowing includes internal and external borrowings.
• Internal borrowings are of two types :
1. issuing government bonds and T-bills to public
2. deficit financing
• External borrowings includes borrowings from:
1. foreign governments
2. international organizations
3. market borrowings

13. RELATIONSHIP BETWEEN
BORROWINGS AND
ECONOMIC GROWTH:
CONTROVERSIES
REGARDING
CROWDING-OUT AND
CROWDING-IN

14. CROWDING-OUT
• Meaning : It is the fall in private investment due to deficit spending by the
government
• Mechanism :
1. Deficit spending through deficit financing
Deficit Financing
Increase in money supply, but static supply of commodities
Inflationary Trend
Tight money policy = Increasing interest rates
“Choking off“ of private investment

15. • 2. Deficit spending through market borrowings :
Market borrowings
Sale of government bonds and T-bills
Transfer of purchasing power to government
Fall in private investible surplus
Crowding Out of private investment
• Effect :
Because of crowding-out of private investment, the expansionary effect of the deficit
spending on the economy reduces or sometimes even gets neutralized.

16. CROWDING-IN
• Meaning : It means rise in the private investment due to deficit spending by the
government
• Mechanism :
Deficit Spending
Increase in interest rates and aggregate demand
Increase in production to cater increased demand
More utilization of existing capital stock
Increase in demand for capital i.e. crowding-in of investment
• Effect : Deficit spending spurs private investment

17. TARGET VARIABLES
• The target variables are the macro variables that are intended to be
stimulated to achieve the intended macro-economic results.
in simple words, fiscal instruments are “means to an end” and
target variables
are the “end.”
• Such target variables include –
1. Private disposable incomes
2. Private consumption
3. Private savings & investment
4. Exports and imports

18. FISCAL POLICY FOR ECONOMIC
EQUALITY
• Disparity is inherent in any system
• But disparity beyond a level, is undesirable. So it is prudent to keep
disparity within acceptable levels
• Tax policy to eradicate economic inequality :
1. Tax at progressive rates
2. Tax on wealth and property
3. Exorbitant taxes on luxury goods
• Government expenditure policy to eradicate economic inequality :
1. Reallocation of capex to rural areas
2. Spending on skill development
3. Providing incubators for start ups

19. LIMITATIONS
1. Unreliable data and no proper method of forecasting
2. In under-developed economies, following problems plague fiscal
policy :
i) low levels of income
ii) small population under tax net
iii) existence of parallel economy
iv) pervasive corruption
3. Time consuming to formulate a comprehensive policy
4. Inflationary trend due to deficit financing

20. MORE ABOUT OUR ARTICLE
• Talks about wisdom of fiscal tightening
• Reflects upon usefulness of fiscal tightening for india
• Also reflects upon need for cheap money policy in the west
• Teaches a truth :
“Get your facts first, then you can distort them as you
please.”
- MARK TWAIN

21. BIBLIOGRAPHY
1. www.economictimes.indiatimes.com
2. www.slideshare.net
3. www.youtube.com
4. www.fourhourworkweek.com/blog
5. en.wikipedia.org/wiki/Keynesian_economics
6. Course material provided by our college
7. www.brainyquote.com

22. RELATIONSHIP BETWEEN ECONOMICS AND
ONE-LINERS
“An economist is a man who knows a hundred ways of making love but
doesn’t know any women.”
- ART BUCHWALD
“Government's view of the economy could be summed up in a few short
phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops
moving, subsidise it.”
- RONALD REAGAN

23. GRACIAS