implications of fiscal policy and central budgets on an economy

1. Too often in recent history liberal government have been wrecked on rocks of loose fiscal policy. - Franklin D Roosevelt

2. FISCAL POLICY AND BUDGET AT A GLANCE Presented by Group 6

6. Issues Related to Aggregate Demand Y O X Y1 Y2 Δ Y E G H R C + I C + I + G Z 45⁰ Slope is equal to MPC National Income C, I, G Multiplier = 1 1- MPC

8. Instruments of Fiscal Policy in Inflation Y O X Y F Y 2 Δ Y E Inflationary Gap H C + I + G 1 # C + I + G 2 Z 45⁰ Expenditure (C, I, G) National Income J C + I + G 1 Y 1 # Δ Y = Δ G* 1 [1– MPC*(1-t)] Δ G

9. Crowding Out Effect (Recession) E3 E2 E1  I Y 2 Y 1 Y F 45  C+I 1 +G 2 C+I 2 +G 2 C+I 1 +G 1 45  C + I + G Y O X National Income Interest I 2 I 1 r 1 r 2 O Y X  I I I Investment

10. Instruments of Fiscal Policy to Cure Recession Y O X Y 1 Y F Δ Y E 1 Δ G H R C + I 1 + G 1 C + I 1 + G 2 45⁰ 45⁰ Expenditure GNP Gap Deflationary Gap National Income Δ Y = Δ G* 1 1 - MPC Y O X M s 1 M s 2 E 1 E 2 M d 1 M d 2 r Rate of interest Quantity of money

11. The Essence of Taxation T/ Y Y Income O % of income paid in taxes Progressive Proportional Regressive The Laffer Curve Tax Rate Tax Revenues R2 R1 50% 60% Maximum Tax Revenues

12. Government Expenditure

14. India’s Fiscal Deficit