to bring about economic stability in the economy what r the steps the finance minister can take in the budgetary policy ?? Pls answer quickly...asap...

Dear Student,

Economic instability can be due to unemployment, depression or inflation. In case of unemployment and depression, following steps can be taken by finance minister to bring economic stability in the economy.

1. Finance minister can follow the deficit budget policy.  Under this, the government's expenditure is more than its revenue due to spending on development works, such as construction of infrastructure, schools, hospitals, etc. This is because expenditure on such projects have long-run effect on the economic growth of a country. Besides this, the presence of such infrastructure will facilitate future growth and development. 
2. Finance minister can reduce the taxes so that there is an increase in purchasing power of people. This results in increase in consumption expenditure.
3. He can also increase public expenditure and provide social security.

In case of inflation, following steps can be taken.

i. Reduction in public expenditure leads to a decline in the demand for goods and services in the economy, causing a fall in the price level.
ii. Reduction in public borrowings reduces the purchasing power of the people, reducing their demand for goods and services. This reduction in demand, in turn, leads to a fall in the price level.
iii. Increase in taxes reduces the disposable income in the hands of the people,which in turn lowers the demand for goods and services and leads to a fall in the prices.
iv. Creating a surplus budget by lowering public expenditure and/or increasing government revenue by increasing taxes reduces the demand for goods and services in an economy and helps in reducing inflation.

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