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What is fiscal policy?

It can be either expansionary or contractionary. Along with RBI's policy that influences a nation's money supply, it is used to direct a country's economic goals.

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Last Updated: Jan 07, 2020, 10.32 AM IST
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Fiscal means something that is related to public money or taxes. Fiscal policy is an estimate of taxation and government spending that impacts the economy. It can be either expansionary or contractionary. Along with RBI's policy that influences a nation's money supply, it is used to direct a country's economic goals.

An expansionary fiscal policy is one which is used at the times of an economic slump. Government cuts taxes to spur economic growth. On the other hand, a contractionary fiscal policy is aimed at lowering inflation as it tends to reduce the quantum of money by raising taxes and reducing spending.

The fiscal policy should be ideally in line with the monetary policy but since it is created by lawmakers, people's interest over growth often takes centrestage.

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