Related Terms (Fiscal Policy)
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Fiscal Deficit:
- It refers to the difference between a government’s total expenditure and its total revenue (excluding borrowings) during a particular period.
- A fiscal deficit indicates the amount of money the government needs to borrow to meet its expenses.
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Fiscal Consolidation:
- It is the process of reducing a government’s fiscal deficit by increasing revenue and/or cutting public spending.
- The aim is to bring the government’s budget closer to balance over time, which helps to ensure long-term economic stability.
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Fiscal Drag:
- Fiscal drag occurs when a growing economy pushes individuals and businesses into higher tax brackets, leading to an increase in the tax burden.
- It happens even when tax rates remain unchanged because of inflation or wage growth.
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Fiscal Neutrality:
- Fiscal neutrality refers to a situation where government policies do not affect the level of aggregate demand in the economy.
- This can be achieved when changes in government spending are offset by changes in taxation.
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Crowding Out Effect:
- The crowding-out effect occurs when increased government spending leads to higher interest rates, which in turn reduces private sector investment.This happens because the government borrows more money, increasing the demand for funds and pushing up interest rates.
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Pump Priming:
- Pump priming is a strategy the government uses to stimulate the economy by increasing public spending, particularly during economic slowdown.
- It aims to “prime” the economy for growth by injecting money into it, thus encouraging demand and investment.
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Economic Stimulus:
- Economic stimulus refers to government actions, usually involving increased public spending or tax cuts, aimed at boosting economic activity during a downturn.
- The objective is to increase aggregate demand, stimulate growth, and reduce unemployment.