Q.Explain the objectives and instruments of Fiscal Policy.

Fiscal policy pursues several macroeconomic goals at once, using the government's own revenue and spending decisions as the tools.

Objectives of Fiscal Policy:

1. Economic growth — raising the economy's long-run productive capacity through public investment in infrastructure, education and health.
2. Price stability — moderating inflation by reducing spending or raising taxes to cool demand, or countering deflation by increasing spending or cutting taxes.
3. Full employment — using public spending, especially on infrastructure and public works, to create jobs, particularly during a slowdown.
4. Equitable distribution of income and wealth — combining progressive taxation (higher rates on higher incomes) with welfare expenditure to reduce economic inequality.
5. Correcting balance of payments disequilibrium — using fiscal tools such as tariffs and export incentives to influence the trade balance.

Instruments of Fiscal Policy:

1. Taxation — adjusting tax rates or restructuring the tax system to influence disposable income, consumption, saving and investment.
2. Public Expenditure — raising spending (especially counter-cyclically, in a slowdown) to boost demand, or cutting it to cool an overheating economy. …

Describing Deficit Financing as a purely positive tool with no downside — it genuinely risks inflation if the extra money created chases the same (or insufficiently increased) quantity of goods and services, which is …