Critical Evaluation of Fiscal Policy of India

Foremost, I would like to express my sincere gratitude to my advisor Ms. Upekha Manamendra for the continuous support of create this report, for her patience, motivation, enthusiasm and immense knowledge. I could not have imagined having a better advisor and mentor for create my report.

Thus some government spending is necessary for the successful economic conditions. Examples of good government spending would be maintaining the legal system which can have a high rate of return. However in general the government doesn’t use the financial resources effectively. It promotes economically abominable decisions. The welfare programs encourage people to remain unemployed. Flood insurance programs encourage people to construct buildings and residences in high probability flood areas. These and other such programs reduce economic growth if the government borrows money and spends on them. For every dollar the government spends, it translates to one less dollar in the productive sector of the economy. In other words this slows down the growth since the political forces dominate how the money is spent. In summary, Governments should not be allowed to borrow during recession. The disadvantage being that the government can use this money in an inefficient measure. Non-availability of borrowing power would force the government to make sound economical decisions during a recession and not move into the next

Furthermore, when the government borrows all this money another problem is created called “crowding out.” The interest rates are increased because of the deficit spending from the borrowing. Hence, the financing needed by private businesses is more difficult as well as the purchasing of new equipment or construction of new factories. Government borrowing deteriorates the strength of the economy as well as builds debt. Private spending decreases when government spending increases. Stimulation from government into the economy should only occur once it has been given a chance to recover on its own and failed.

An open market purchase of government securities  An increase in the discount rate  A cut in the required reserve ratio 14. Deficits may be desirable in the short run if they  help to stabilize the economy when the economy falls below potential output  increase savings necessary for future investment and growth  increase savings necessary for future consumption and demand  help to stabilize the economy when the economy is above potential output 15. If for a country, the quantity of its currency demanded exceeds the quantity supplied, then there is a  balance of payments surplus 

The underlying truth of deficit spending is the same whether it is used in finance, economics or government that the more is spent, the less income is made (Buzzle, 2014). Many economists argue that deficit spending will hinder economic growth while others disagree. Deficit spending has been the topic of debate for a very long time. Deficit spending is “when government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect of raising interest rates” (Investopedia, 2013). In simpler terms, deficit spending is when a governing body of a nation needs to borrow money from other nations due to the nation being in a recession. Governments borrowed against future revenues so that they are able to finance domestic welfare spending before the twentieth

However, to some, it is considered a controversial political issue a negative expenditure by the federal government and sees as an effect to citizens and the loanable market. The excessive government spending lead to a budget deficit the opposite of deficit spending. Assume an individual spends excessively, there is the tendency of borrowing from someone to continue the spending. Today, several countries borrow from wealthy nations because of their economy's strength. Deficit spending does not allow saving or interest earned due to debt. For instance, most lending from another country comes with a high-interest rate. It also leads to lower economic growth. The spending can sometimes be beyond what is available in the yearly budget considered

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Deficit spending is a situation where government expenditures will exceed its revenues hence causing a deep deficit. The government excess spending needs to be financed by borrowing mainly sourced from the foreign governments (Hassan, Nassar & Liu, 2014). Increased level of government spending assist in stimulating the economy since there is more money in flows, but the increased borrowing will cause adverse effect of raising the level of interest rates. Under deficit spending, a government will borrow money now and pay back the amount in future. The plans within most economy is to grow, and after realizing the growth more people will work and if more people will work, they will have capacity to buy more things and there will be more money in circulation (Moran, 2013). The more money in circulation, the more the tax revenues will be realized.

The people of the United States are by the fiscal policies. Team C will address the how and why the U. S. budget deficits, budget surpluses, and debt affect different individuals and institutions. There is a wide array of individuals affected by fiscal policy, which include tax payers, future Social Security and Medicaid users. The unemployed individuals and University of Phoenix students will be affected by fiscal policy. The U.S. financial reputation, an exporter, and importer, and affects of the GDP will also be covered about the affects of the U.S. fiscal policy.

This paper will attempt to answer the question: Is the federal deficit and government deficits in general a good or a bad thing? While it may be easy to lose sight of how the government chooses to handle its money, it is also important for citizens to be conscious of how their money is being spent, and whether or not the current course that the government is plotted on is either sustainable or the best allocation of resources.

However in the event that the government endeavored to unravel the monetary allowance deficiency by expanding the rate of charges this would further flatten the economy prompting lower development and more unemployment. On the off chance that there is a negative multiplier impact this may really bring about the deficiency to expand significantly more. It is viewed as one of the positives of shortfall spending. “When a government spends excessively, it can afford to buy infrastructure for the country. This, in turn, leads to employment of labor force. As more money flows into the country, the overall economy growth rate accelerates” (Advantages and Disadvantages 2014). This is particularly helpful amid a retreat, as this can animate employments, expand organizations, private speculation endeavors increment, and thus, the country's economy

Fiscal policy is a system used for the economy that helps the fluctuation of financial goals by the alterations of government expenditures or taxes. There are two different fiscal policies used debating on the growth or decline of the economy. First is expansionary fiscal policy that is used to help boost the economy when it is in a decline like the recession our nation just witnessed along with prior years. Which in this case the government can decrease interest rates, and use tax incentives to help boost the financial system and private spending. Second is contractionary fiscal policy that is put into effect when the economy is at an incline and possible inflation is taking place. In which instead of decreasing interest rates they could raise

The many sides to the disadvantages of Deficit spending is plentiful but we cannot totally rule this practice out of play. Most economist will agree that at some point government spending becomes a burden because it becomes too large and can get out of control so of the ways it can affect the economy are as

The deficit affects a University of Phoenix student because funding for financial aid could be compromised leading to more private loans. Loans become

Government spending and its influences on economic growth is a hotly debated issues among professionals. Policymakers are divided between whether an economy can expand or is stripped of its potential to grow as government spending increase. Spending on for example infrastructure and defense are constructive, many economists question that public spending has decreasing marginal benefits and lead to crowding out of the the private sector. Supporters of larger government spending claim that government programs offer valuable public goods such as education and infrastructure which would not work efficiently if they were privately owned. Furthermore, an argument advocates use is that in government spending can boost economic growth by putting money into people 's pockets. Proponents of smaller government have the opposite view. They argue that governments which are too big destabilize economic growth by not allocating resources to the most efficient user and take away from the productive sector of the economy to government. This paper evaluates the influence of government spending on economic performance. It examines the theoretical arguments, reviews evidence and highlights the latest academic research.