Fiscal balance is very important. Fiscal balance is managed by government. Fiscal deficit should be ideally somewhere around 2.5% to 3%. Beyond that inflation takes place, inflation is something like fever, it can quickly go out of control.
Fiscal policy is totally under control of govt, ministry of finance, now also coordinated by Prime minister's office PMO in India
Monetary policy is by RBI. Two types of monetary policies exist, expansionary and contractionary.
Expansionary- more credit availability, when there is slowdown in economy, RBI reduces bank interest rate, people take loans, availability of credit increases, we have increase in economic activities, employment increases, expenditure increases, revenue collection increases.
Contractionary—Here we already have inflation, excess money supply exists, value of money is falling, prices are rising, less credit availability has to be done to tame inflation.
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