Explain how public expenditure can be used as an instrument of fiscal

1.	Explain how public expenditure can be used as an instrument of fiscal policy to solve the problem of(i) Income inequality (ii) Inflation
Answer» (i) Public expenditure includes government expenditure on public works, subsidies, relief works and transfer payments. Such expenditures help in generating income and creating employment, which helps in reducing the income gap in society. (ii) Inflation occurs when there is increased spending in the economy. To control inflation, the government can lower public expenditure. This results in a reduction in aggregate demand which helps in controlling inflationary pressures. Controlling aggregate demand leads to lower growth and hence lower inflation.

Explain how public expenditure can be used as an instrument of fiscal policy to solve the problem of(i) Income inequality (ii) Inflation

Answer»

(i) Public expenditure includes government expenditure on public works, subsidies, relief works and transfer payments. Such expenditures help in generating income and creating employment, which helps in reducing the income gap in society.

(ii) Inflation occurs when there is increased spending in the economy. To control inflation, the government can lower public expenditure. This results in a reduction in aggregate demand which helps in controlling inflationary pressures. Controlling aggregate demand leads to lower growth and hence lower inflation.

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