How Fiscal Policy provides Stability, growth and Equity

The objectives of Fiscal policy in developed country is different from those in underdeveloped countries. The main objective of fiscal policy in developed countries is maintaining economic stability. Economic development is the main objective in underdeveloped countries.

The main objectives of fiscal policy are as follows:

1) Stability

2) Growth

3) Equity

Economic Stability

Providing stability to the process of growth and development is the key role of fiscal policy in any economy.

Economy stability means that the level of economic activity is maintained at a stable level so that there are no fluctuations in output and employment.

How Fiscal Policy control Inflation

In the situation of inflation there is a high price rise in the economy, this is due to increase in Aggregate Demand (AD). When there is an increase in AD beyond the full employment level, output remain constant since output cannot be increased as there is full employment, all resources are fully utilized, this leads to an increase the cost of production of existing factors of production and price rises. More and more rise in prices leads to a situation of inflation due to the situation of excess demand .

Fiscal Policy

Fiscal policy is the revenue and expenditure policy of the government. It is also called as the budgetary policy of the government. Through its revenue and expenditure policy, situation of  ---

inflation ( excess demand ) and deflation ( deficient demand ) 

is checked and controlled by varying the size and composition of revenue as well as of expenditure. Fiscal policy leads to the growth and stability of the economy. Fiscal policy is the policy of the government which includes components like taxation, public expenditure and public borrowing. Following are the principal instruments of fiscal policy which, when used in a proper combination to achieve the best possible results in terms of the desired economic objectives like.

Maintaining economic stability

High employment

And, accelerating economic growth