Question

Which of the following correctly lists the revenue-side instruments of fiscal policy?

Options

• Government expenditure on education, welfare and law and order

• Public works programmes, subsidies and defence expenditure

• Direct taxes, government expenditure and public works

• Taxation, public debt (public borrowing) and deficit financing

Answer 1

The revenue instruments of fiscal policy are taxation (a key instrument on the revenue side), public debt (public borrowing by the government from the public), and deficit financing (issuing more currency to meet the budget deficit in India). Public works and subsidies fall under government expenditure.