Public FinancePYQ - Jan 2021 (Inter)Question 126 of 20

Fiscal Policy is formulated by:

Options

ACentral Bank

BGovernment

CSEBI

DCommercial Banks

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Correct Answer

✅ Option b — Government

All Options:

ACentral Bank
BGovernment
CSEBI
DCommercial Banks

Detailed Solution & Explanation

To determine who formulates fiscal policy, we need to understand what fiscal policy is. Fiscal policy refers to the use of government spending and taxation to influence the overall level of economic activity. • The government has the power to change tax rates and levels of government spending, which in turn affects the overall level of aggregate demand in the economy. • This is based on the Keynesian economic theory, which suggests that government intervention can help stabilize the economy during times of economic downturn. • The government is responsible for collecting taxes and allocating funds for public expenditure, making it the primary institution that formulates and implements fiscal policy. • In contrast, the central bank is responsible for monetary policy, which involves the use of interest rates and money supply to influence the economy, making it an incorrect option. • Similarly, SEBI and commercial banks do not have a direct role in formulating fiscal policy, as their primary functions are related to regulating the securities market and providing banking services, respectively.

About This Chapter: Public Finance

Paper

Paper 4: Business Economics

Weightage

10%

Key Topics

Fiscal Policy, Budget, Market Failure

This chapter deals with government finances — how the government earns (taxation) and spends (expenditure) money. Key topics include Fiscal Policy, types of taxes (Direct and Indirect), the Union Budget, Public Debt, and the concept of Market Failure and how government intervention corrects it.

View Official ICAI Syllabus

Exam Strategy Tip

Focus on the difference between Revenue and Capital items in the budget. Understand Fiscal Deficit and its implications. Tax-related MCQs are commonly asked.

Key Concepts to Understand

Fiscal Policy

Government use of spending and taxation to influence economy.

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