Explain the role of government expenditure in correcting deficient demand.
Explain the role of government expenditure in correcting deficient demand.
The government corrects the situation of deficient demand through fiscal policy. It can be done the following ways:
(a) Decrease in taxes: Direct and indirect tax should be reduced. This will increase the disposable income in the hands of people, who have more to spend on consumption.
(b) Increase in public expenditure: In case of deficient demand, the Government should increase public expenditure, on projects like construction of roads, bridges, buildings, etc. In this way, more money will flow into the hands of consumers and thereby they will spend more.
(c) Deficit financing: The printing of new currency notes should be encouraged so that more money flows into the economy and demand level rises.
The government corrects the situation of deficient demand through fiscal policy. It can be done the following ways:
(a) Decrease in taxes: Direct and indirect tax should be reduced. This will increase the disposable income in the hands of people, who have more to spend on consumption.
(b) Increase in public expenditure: In case of deficient demand, the Government should increase public expenditure, on projects like construction of roads, bridges, buildings, etc. In this way, more money will flow into the hands of consumers and thereby they will spend more.
(c) Deficit financing: The printing of new currency notes should be encouraged so that more money flows into the economy and demand level rises.
