- Economic Stability: Control booms and depressions.
- Full Employment: Create jobs and reduce involuntary unemployment.
- Economic Growth: Increase output and raise living standards.
- Price Stability: Control inflation and maintain value of money.
- Reduce Inequality: Ensure fair distribution of income and wealth.
- External Equilibrium: Maintain balance of payments stability.
Definitions [1]
Definitions: Monetary Policy
“The management of the expansion and contraction of the volume of money in circulation for the explicit purpose of attaining a specific objective such as full employment.” — R.P. Kent
“Monetary Policy consists of the steps taken or efforts made to reduce to a minimum the disadvantages that flow from the existence and operation of the monetary resources in the economy to attain certain specific objectives….” — Prof. Crowther
“Monetary policy involves the influence on the level and composition of aggregate demand by the manipulation of interest rates and the availability of credit.” — D.C. Aston
“By monetary policy, we mean any conscious action undertaken by the monetary authorities to change the quantity, availability and cost of money.” — G.K. Show
Key Points
Key Points: Objectives of Fiscal Policy
Key Points: Indirect Tax
- An indirect tax is charged on goods and services, not directly on income.
- It is paid when a product or service is produced, sold or purchased (e.g. GST in India).
- Producers and sellers can shift the burden to consumers through higher prices, so the person who pays it to the government is not the one who finally bears it.
Key Points: Direct Tax
- A direct tax is paid directly on a person’s income or property, and its burden cannot be shifted to someone else (e.g. income tax, wealth tax).
- Proportionate tax: Same fixed rate on all income levels.
- Progressive tax: Tax rate increases as income increases.
- Regressive tax: Rich pay a smaller proportion of their income than the poor.
Concepts [5]
- The Instruments of State Intervention
- Objectives of Fiscal Policy
- Types of Taxes
- Monetary Policy
- Distinction Between Monetary and Fiscal Policy
