Define fiscal policy Differentiate between contractionary and-00563

Fiscal Policy

Fiscal policy is the government's about the expenditure in form of purchases, subsidies and interest payments on debt etc. revenue in form of taxes etc.

Difference between Contractionary and Expansionary Fiscal Policy

Contactionary Fiscal Policy Expansionary Fiscal Policy
In conactionary fiscal policy government decreases its expenditure.
In expansionary fiscal policy government increases its expenditure.

Budget Deficit and Budget Surplus

Budget deficit exists if government expenditure increases the revenue earned. In this case government needs to finance its expenditure through borrowing. Budget surplus exists when revenue exceeds the government expenditure. In this condition government can easily pay off its debt borrowings.