UPPSC-UPPCS Mains- Answer writing practice #53

UPPSC/UPPCS Mains- Answer writing practice

Discuss the role of fiscal policy in controlling inflation and accelerate economic growth.(200 w)

मुद्रास्फीति को नियंत्रित करने और आर्थिक विकास को गति देने में राजकोषीय नीति की भूमिका पर चर्चा करें।


Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply. Fiscal Policy can be used to control inflation, accelerate the rate of economic growth and achieve economic stability in the following ways:
Inflation:
Fiscal policy and budgetary measures are the effective weapons to control demand-pull inflation in two ways:
· In case, government expenditure is the main cause behind the demand-pull inflation, then it can be controlled by cutting down the public expenditure.
· In case, the demand rises due to the rise in private expenditure, taxing income is the most appropriate way to control inflation.

Economic stabilization:
Fiscal policy plays a leading role in maintaining economic stability in the face of external and internal forces.
· External– In the period of boom, export and import duties are imposed to minimize the impact of international cyclical fluctuations. To curb the use of additional purchasing power, heavy import duty on consumer goods and luxury import restrictions are needed. During the period of recession, government may undertake public works programmes through deficit financing.
· Internal– The progressive tax structure helps to counteract economic disturbance. By varying public expenditure, the government counteracts the inflationary and deflationary situations in the economy.
Accelerate the rate of economic growth:
The fiscal policy can affect the rate of economic growth and development of the economy in a variety of ways such as by increasing the rate of saving and investment, controlling inflation, resource mobilization, development of the private sector, optimization of resources allocation, creation of social and economic overheads, balanced regional development, reduction of inequality and promoting economic stability.


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