Indian Fiscal Policy Impacts

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LOVELY PROFESSIONAL UNIVERSITY Term Paper School of Business Department of Management Name of the Student: Azhar Shokin Regd. No.: - 11000968 Course Code: MGT511 Course Title: Business Environment Course Instructor: Vishwas Chakranarayan Course Tutor: Vishwas Chakranarayan Class: MBA Semester: 1st Section: S1001 Batch 2010-12 Student’s Signature Azhar Shokin Topic: - Impact of Fiscal Policy on Indian Economy Contents * Introduction * Literature Review * Research * Article * Analysis * Data and Methodology * Main Findings * Conclusion * Recommendations * References Impact of Fiscal Policy on Indian Economy Introduction In economics, fiscal policy…show more content…
This can be used in times of recession or low economic activity as an essential tool for building the framework for strong economic growth and working towards full employment. In theory, the resulting deficits would be paid for by an expanded economy during the boom that would follow; this was the reasoning behind the New Deal. Governments can use a budget surplus to do two things: to slow the pace of strong economic growth and to stabilize prices when inflation is too high. Keynesian theory posits that removing spending from the economy will reduce levels of aggregate demand and contract the economy, thus stabilizing prices. Economists debate the effectiveness of fiscal stimulus. The argument mostly centers on crowding out, a phenomena where government borrowing leads to higher interest rates that offset the simulative impact of spending. When the government runs a budget deficit, funds will need to come from public borrowing (the issue of government bonds), overseas borrowing, or monetizing the debt. When governments fund a deficit with the issuing of government bonds, interest rates can increase across the market, because government borrowing creates higher demand for credit in the financial markets. This causes a lower aggregate demand for goods and services, contrary to the objective of a fiscal stimulus. Neoclassical economists generally emphasize crowding out while Keynesians argue that fiscal
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