What are the limits of fiscal policy?

Fiscal policy can conflict with monetary policy in certain circumstances.

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Government spending and taxation cuts have consequences for the government deficit; there are also limits to the utility of stimulus in a globalised economic system.

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Governments spend a significant proportion of GDP anyway and so marginal increases in the rate of expenditure are unlikely to have an overall significant outcome.

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Spending is often wasted and is inefficient, so it is not economically advisable to spend government money in this way.

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Solution

The correct options are
A
Fiscal policy can conflict with monetary policy in certain circumstances.

B
Government spending and taxation cuts have consequences for the government deficit; there are also limits to the utility of stimulus in a globalised economic system.

D
Spending is often wasted and is inefficient, so it is not economically advisable to spend government money in this way.

Fiscal policy has 3 of the limitations:

1. Spending is often wasted and is inefficient, so it is not economically advisable to spend government money in this way.

2. Fiscal policy can conflict with monetary policy in certain circumstances.

3. Government spending and taxation cuts have consequences for the government deficit; there are also limits to the utility of stimulus in a globalised economic system.

Suggest Corrections

Similar questions

Q. A rule based fiscal policy by limiting government debt, fiscal deficit and revenue deficit to certain targets is good for fiscal consolidation in India. Elucidate this statement with different government initiatives for improving fiscal consolidation.

Fiscal policy refers to the policy of government regarding taxation public expenditure and ____.

Q. Editorial: The premier’s economic advisor assures her that with the elimination of wasteful spending, the goal of reducing taxes while not significantly decreasing government services can be met. But the premier should not listen to this advisor, who in his youth was convicted of embezzlement. Surely his economic advice is as untrustworthy as he is himself, and so the premier should discard any hope of reducing taxes without a significant decrease in government services.

Which one of the following is a questionable argumentative strategy employed in the editorial’s argument?

Consider the following statements in respect of the Fiscal Responsibility and Budget Management Act:
1.It lays down limits for revenue deficit and fiscal deficit as a percentage of GDP.
2.It applies to both Central and State Governments.
3.It does not permit the Central Government to give guarantees to loans raised by PSUs and State Governments beyond 0.5 per cent of GDP.
4.It prescribes an upper limit for the liabilities of the government.
Which of these statements are correct?

If the government is trying to promote stability and economic growth through tax cuts, what type of fiscal policy being used?

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