Fiscal Policy — Part 1: Fiscal Policy and Taxes: visual lesson, ISC Class 12 Economics

Lesson

Fiscal Policy and Taxes

Part 1 — what fiscal policy is, its instruments, and the taxes that fund the government.

In this lesson you will

Explain the meaning and instruments of fiscal policy and how they affect aggregate demand
Distinguish direct and indirect taxes, and a tax from a fee
Classify and calculate progressive, proportional and regressive taxes

Part 1 at a glance

Concept

What is fiscal policy?

Fiscal policy is the government's use of taxation, public expenditure and public borrowing to influence demand, output, employment and prices.

Three instruments

Compare

Fiscal policy and monetary policy

Fiscal policy

Run by the government
Tools: taxes, spending, borrowing
Works through incomes and public demand

Monetary policy

Run by the central bank
Tools: repo rate, reserve ratios, open market operations
Works through the cost and supply of credit

Table comparing fiscal and monetary policy: who runs each, their tools, and how each works
	Fiscal policy	Monetary policy
Run by	Government	Central bank
Tools	Taxes, spending, borrowing	Repo rate, reserve ratios, open market operations
Works through	Incomes and public demand	Cost and availability of credit

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