What possible fiscal policy measures can be taken with respect to expenditure and income to correct (i) Excess demand and (ii) Deficient demand in the economy.
(i) Fiscal policy measures to correct excess demand are:
(a) Reduction in government expenditure on public works, public welfare and defence, etc.
(b) Reduction in public expenditure on transfer payments and subsidies.
© Increase in taxes to Iower the disposable income with the people.
(d) Restricted deficit financing to check the flow of money in the economy.
(e) Reduction in purchasing power through greater public borrowings.
(ii) Fiscal policy measures to correct deficient demand are:
(a) Increase in government expenditure and investment.
(b) Increase in transfer payments and subsidies.
© Reduction in taxes to increase the disposable income of the people.
(d) More use of deficit financing to increase the flow of money.
(e) Repayment of public debts.