Académique Documents
Professionnel Documents
Culture Documents
Unit-7:
Fiscal and Monetary Policy
and their Impact
Table of Contents
7.1. Learning Objectives ..................................................................................................................... 3
7.2. Fiscal Policy .................................................................................................................................. 3
7.2.1. Budgetary Policy..................................................................................................................... 3
7.2.2. Revenue and Capital Accounts ................................................................................................ 3
7.2.3. Budgetary Surplus or Deficit ................................................................................................... 4
7.2.4. Crowding-out Effect ............................................................................................................... 4
7.2.5. Government Spending ............................................................................................................. 5
7.2.6. Fiscal Policy in India............................................................................................................... 5
7.2.7. Revenue Expenditure ............................................................................................................ 11
7.2.8. Capital Expenditure .............................................................................................................. 11
7.3. Fiscal Deficit ............................................................................................................................... 11
7.3.1. How Fiscal Deficit Happens .................................................................................................. 11
7.4. Why High Fiscal Deficit is Bad? ................................................................................................ 12
7.5. Primary Deficit ........................................................................................................................... 13
7.6. Monetary Policy .......................................................................................................................... 13
7.6.1. Management of Monetary Policy .......................................................................................... 15
7.6.2. Central Bank ......................................................................................................................... 15
7.6.2.1. Roles and Functions of a Central Bank .......................................................................... 16
7.7. Central Bank and Monetary Policy ........................................................................................... 17
7.7.1. Quantitative and Qualitative Measures .................................................................................. 18
7.7.1.1. Quantitative Credit Control Measures ............................................................................ 18
7.7.1.2. Qualitative Credit Control Measures .............................................................................. 19
7.8. Monetary and Credit Policy in India ......................................................................................... 20
7.9. Effectiveness of the Monetary Policy ......................................................................................... 21
7.10. Summary ................................................................................................................................... 22
7.11. References ................................................................................................................................. 23
7.11.1. Book References ................................................................................................................. 23
7.11.2. Web References .................................................................................................................. 23
Page 2 of 23
The budget has two components namely, revenue or current account and capital account.
The revenue account displays receipts from tax collection while the capital account
shows all debt liabilities and payments of interest on loans.
7.2.3. Budgetary Surplus or Deficit
If the current or revenue account receipts are exactly equal to proposed expenditure, then
the budget is said to balanced where G = T (Government spending = Tax revenue).
If the revenue receipts fall short of the proposed expenditure (G>T), then it is a case of a
deficit budget.
On the other hand, if revenue receipts exceed the proposed expenditure (G < T), then it is
called surplus budget.
In case of surplus budget, the public revenue exceeds public expenditure. It then becomes possible for
the government to repay some debt burden. It is also possible to raise tax rates and to withdraw some
purchasing power from circulation. A surplus budget (which is also known as contractionary) policy is
useful under inflationary conditions.
During inflation, the general price level shows a strong tendency to move sharply upwards. Therefore,
such a situation can be corrected by withdrawing some purchasing power from the people. This helps to
bring down the level of effective demand.
In case of a deficit budget, the government expenditure has exceeded receipts. Therefore, the
government intends to spend more and increase the size of the aggregate or effective demand. This can
be done by raising fresh debts to finance extra expenditure. Alternatively, the tax rates can also be
reduced in order to enable people to spend more.
The deficit budget is also known as an expansionary policy. This is because through deficits and
enhanced public spending, the overall level of effective demand can be expanded. Such a policy is
pursued during the period of deflation. Under such conditions the price level is depressed, the output
level is falling and the level of unemployment is increasing. Therefore, the rising level of effective
demand is expected to act as a remedy.
7.2.4. Crowding-out Effect
Expansionary and contractionary fiscal policies have been popular with modern public authorities and
have been effective over the past years in many economies all over the world. However, it has certain
flaws. It is pointed out that extra government expenditure is financed through public borrowings. As a
result of this, the money available for loans is reduced and there is a greater demand for loanable funds
in the money and capital markets. With a sudden rise in the demand, the price of loanable funds or the
Page 4 of 23
rate of interest starts rising. Again extra public expenditure, which gives rise to an upward movement of
the price level, also has a similar effect on the rate of interest.
Rising level of the interest rate has a discouraging effect on private investment activity.
Thus, increased public investment expenditure causes a fall in the private investment
activity. This is called the 'crowding-out' effect. It is claimed therefore, that fiscal policy
is likely to develop a self-defeating tendency.
During the phase of inflation, contraction in public expenditure can be equally selfdefeating. In this case with a fall in the effective demand, the rate of interest will tend to
fall and will encourage private investment activity. This is exactly the opposite case and
therefore, can be called the 'crowding-in' effect.
7.2.5. Government Spending
Governments spend money on a wide variety of things, from the military and police to services like
education and healthcare, as well as transfer payments such as welfare benefits. The expenditure is
funded through taxation, seignorage (printing money), borrowings and sale of government assets.
7.2.6. Fiscal Policy in India
The main changes in fiscal policy happen once a year in the Budget. The Budget indicates the
government's economic thinking and determines activities such as exports and foreign direct
investment, which indirectly impact our finances.
The Budget has both short-term and long-term effects on finances. Short-term effects take place via
taxes and prices. Tax rates determine disposable income. Income tax rates laid down in the budget make
a big difference to salaried people, who have fixed incomes. The indirect taxes like excise and customs
duties laid down in the Budget impact product prices, and hence spending decisions. In the next section
we will discuss the highlights of Indian budget.
Note: In India, the annual budget is presented on last working day of February.
Page 5 of 23
Table 7.1. Union Budget of Indian Government, July 2009 (In Crores of Indian Rupees)
2007-2008
2008-2009
2008-2009
2009-2010
Actuals
Budget
Revised
Budget
Estimates
Estimates
Estimates
1. Revenue Receipts
541864
602935
562173
614497
2. Tax Revenue (net to Centre)
439547
507150
465970
474218
3. Non-tax Revenue
102317
95785
96203
140279
4. Capital Receipts (5+6+7)
170807
147949
338780
406341
5. Recoveries of Loans
5100
4497
9698
4225
6. Other Receipts
38795
10165
2567
1120
7. Borrowings and
126912
133287
326515
400996
other Liabilities
8. Total Receipts (1+4)$
712671
750884
900953
1020838
9. Non-plan expenditure
507589
507498
617996
695689
10. On Revenue Account of
420861
448352
561790
618834
which,
11. Interest Payments
171030
190807
192694
225511
12. On Capital Account
86728
59146
56206
76855
13. Plan Expenditure
205082
243386
282957
325149
14. On Revenue Account
173572
209767
241656
278398
15. On Capital Account
31510
33619
41301
46751
16. Total Expenditure (9+13)
712671
750884
900953
1020838
17. Revenue Expenditure
(10+14)
18. Capital Expenditure
(12+15)
19. Revenue Deficit (17-1)
20. Fiscal Deficit {16-(1+5+6)}
21. Primary Deficit (20-11)
594433
658119
803446
897232
118238
92765
97507
123606
241273
(4.4)
326515
(6.0)
133821
(2.5)
282735
(4.8)
400996
(6.8)
175485
(3.0)
52569
(1.1)
126912
(2.7)
-44118
-(0.9)
55184
(1.0)
133287
(2.5)
-57520
-(1.1)
Lets us take the Union Budget presented in Parliament in July 2009. The first term is revenue receipts.
Revenue receipts are arranged into two categories, namely Tax revenue and Non-tax revenue. Tax
revenue comprises revenues generated from income tax, corporate tax, service tax, taxes raised from
Union Territories, wealth tax, customs and excise duties.
Non tax revenues comprise among others interest receipts, dividends and profits. The second term is
capital receipts. Capital Receipts includes the market loans, external loans, small savings, and
government provident funds, accretions to various deposit accounts, depreciation and reserve funds of
various government departments.
Page 6 of 23
Note: Revenue receipts and capital receipts together implies the government's total cash inflow.
The figure 7.1 gives the breakup of tax and non-tax revenues for the year 2009-10.
Abstract of Receipts
In crores of Rupees
2008-2009
2008-2009
2009-2010
Budget Estimates Revised Estimates Budget Estimates
Revenue Receipts
1. Tax Revenue
Gross Tax Revenue
Corporation Tax
Income Tax
Wealth Tax
Customs
Union Excise Duties
Service Tax
Taxes of the Union Territories
Less. NICCD transferred to the National
Calamity Contingency Fund
Less States Share
Net Tax Revenue
2. Non -Tax Revenue
Interest Receipts
Dividend and Profits
Other Non Tax Revenue
Receipts of Union Territories
Total Non Tax Revenue
Total Revenue Receipts
687716
226361
138314
325
118930
137874
64460
1451
627849
222000
122600
400
108000
108359
65000
1590
641079
256725
112850
425
98000
106477
65000
1602
1800
178786
607160
1800
180179
486970
2600
184381
474218
19036
43204
32631
815
19036
39736
36682
749
19174
49750
70601
754
86786
602936
88203
562173
140279
614497
Figure 7.1. Breakup of Tax and Non-tax Revenues of India for 2009-2010
Source: Government of India Budget documents
The figure 7.2 gives the breakup of capital receipts of India for the year 2009-2010.
Page 7 of 23
2008-2009
2010
Budget
A. Non Debt Receipts
1. Recoveries of loans & advances
2. Miscellaneous capital receipts
B. Debt Receipts
3. Market Loans
4. Short term Borrowings
5. External Loan (Net)
6. Securities issued against Small Savings
7. State Provident Funds (Net)
8. Other Receipts (Net)
C. Total Capital Receipts
In crores of Rupees
2008-2009
2009Revised
Budget
4497.51
10165.00
9698.29
2566.51
4224.89
1120.00
100571.00
12429.00
10989.27
9872.52
4800.00
(-)12600.22
261972.00
57500.00
9603.20
323.45
00.00
(-)38667.57
397957.46
0.00
046.57
13255.52
5000.00
(-)31263.82
140724.08
308795.88
406340.62
Page 8 of 23
Non-plan capital expenditure mainly includes defense, loans to public enterprises, loans
to States, Union Territories and foreign governments.
Figures 7.3 displays the non-plan expenditure by broad categories.
NON-PLAN EXPENDITURE BY BROAD CATEGORIES
PARTICULARS
Budget
Received
2008-2009
2008-2009
1. Interact payments and debit servicing
190807.47 192898.39
1.01. Interest payments
188407.47 191444.39
1.02. Prepayment premium for reduction of debt
2400.00
1250.00
2. Defense
106800.00 114000.00
2.1. on Revenue Account
57593.00
73600.00
2.2. on Capital Account
48007.00 41000.00
3. Subsidies
3.1. Major subsidies
88637.38 122362.38
3.1.1. Food
32666.59
43827.20
3.1.2. Indigenous (urea) fertilizers
12900.37
16516.37
3.1.3. Imported (urea) fertilizers
7238.89
10981.28
3.1.4. Sale or Decontrolled fertilizers
10847.10
48351.10
with concessions to farmers
Total fertilizers subsidy
30986.36
75843.75
3.1.5. Petroleum subsidy
2884.43
2876.43
3.2. Interest subsidies (statement no- 6)
2829.15
4083.19
3.3. Other subsidies (statement no-8)
2084.07
2827.11
Total- subsidies
71430.80 129242.68
4. Assistant to states for calamity relief @
800.00
3264.70
5. Debit waiver and debit relief scheme for farmers
16000.00
6. General elections
20.00
17.00
7. Postal deficits
968.34
3824.77
8. Subsidy for railways for dividend relief and other
1707.89
1736.17
Concessions
9. Reimbursement of loses to railway on operating
600.00
648.00
strategic railway lines
10. General services
62126.22
69282.77
10.01. Organs of state
2014.09
2786.69
10.02. Tax collections
4089.06
5569.45
10.03. Elections
214.50
390.19
1339.27
1668.44
10.04. Secretarial-General service
10.05. Police
15561.82
20711.43
2211.95
3338.49
10.06. External Aff
10.07. Pensions
25085.49
32690.08
Page 9 of 23
Budget
2009-2010
226610.88
223110.86
2400.00
141703.00
86879.00
54824.00
106678.97
62489.72
9780.25
5947.94
34252.06
49980.25
3109.00
2600.68
3099.36
111276.88
2600.00
16000.00
860.00
6395.20
2088.43
800.00
78249.00
3350.20
6627.08
291.00
1956.56
25389.69
3395.84
34980.35
718.41
484.51
405.12
10384.70
4244.18
2561.40
72.89
412.44
1555.75
464.36
1185.41
963.65
1454.24
695.38
186.82
103.23
16788.29
4972.04
183294
-622.45
1414.95
1550.63
2915.68
152.26
204.69
290.45
43.05
789.04
2066.28
158.73
37255.07
842.69
650.44
635.97
13120.26
5925.28
3542.34
96.02
495.03
1961.58
471.96
1391.11
1137.14
1679.04
769.03
226.85
110.35
19881.61
5891.37
2804.31
-150.39
1434.11
1910.08
4068.21
198.31
216.33
378.85
46.34
940.04
1676.39
202.55
47618.48
1048.32
720.19
489.77
18491.19
7778.60
4411.00
91.38
561.15
2726.70
529.60
172271
1137.14
1551.41
2917.55
278.97
333.12
18305.21
2437.80
1846.32
799.00
1600.77
1985.61
4668.50
233.60
314.44
463.75
64.00
1157.43
2485.31
268.68
42484.80
799.19
1185.71
1050.29
1481.91
10687.00
17.00
1435.12
13894.37
16.76
1610.91
21068.39
17.0
72.00
684.63
72.00
799.32
72.00
3485.08
4.00
814.81
125.01
2.04
2073.36
37.04
2876.84
133.72
315.97
-1800.00
507498.03
-3264.70
617996.87
-2500.00
695688.68
Page 11 of 23
Revenue expenses are the day-to-day expenses, such as salaries payable to the
government employees and armed forces, the expenses incurred in running various
government departments, and so on.
Capital expenses include what is incurred for creating assets and improving infrastructure.
In 2008-09, the major items of expense which overshot budget estimates were the subsidy bill (the
government foots a subsidy on food and fertilisers distributed at a concessional rate).
The key source of revenue for the government is the taxes it collects; both direct and indirect. There are
also non-tax sources from which the government earns money. These may be revenue receipts (usually
recurring in nature) such as dividends received from public sector companies, fees, fines and forfeitures
or capital receipts (mostly one-time), money got through disinvestment of public sector undertakings,
recovery of loans, borrowings, and so on.
A higher fertiliser subsidy, the farm loan waiver scheme, implementation of the Sixth Pay Commission,
which hiked salaries for government employees retrospectively, result in the widening of the deficit.
Increased spending on social welfare projects which may yield no immediate monetary benefit to the
government might worsen the situation. A steep increase in non-Plan revenue expenses and a decline in
capital investments also chipped in. While expenses shot up, the last two quarters of 2008-09 also
turned the heat on the government as tax collections slowed as they contracted by 13 per cent (on yearon-year basis) in October, 15 per cent in November and 25 per cent in December.
Note: A long-term solution to contain fiscal deficit is to curtail it by either economising on expenses or
by raising taxes.
Eq. 7.1
Eq. 7.2
where,
M = Total quantity of money
V = Velocity of the circulation of one unit of currency
P = Index number of prices
Y = Real national income
The total quantity of money M is in the form of coins and currency. This form of money is issued by
the Central Bank, which is the supreme monetary agency. However, the total supply of money can be
much larger than this because each unit of money is transferable and capable of changing hands
frequently. The total function of money supply as a medium of exchange therefore, depends upon the
average number of times a unit changes hands.
In other words, it is the velocity or frequency of using money units. If this is divided by the quantity 'M',
what we get is velocity or the average number of times a particular unit of currency has been used to
purchase final goods and services over a year.
'P', represents the average price level or index number of prices and 'T', the volume of trade or
transactions. The total volume of all the goods and services is traded at the national level and hence, it
can also be symbolized as real national income 'Y'.
The equation 7.2 may be viewed as an identity. The market value of all goods and services must be
equal to the supply of money multiplied by the velocity of the circulation of one unit of currency.
Page 13 of 23
Value of money
The equation of money is used mainly for explaining fluctuations in the value of money. It simply
explains total money supply (MV) is equal to total monetary expenditure (PY). While using it for
explaining transitions in the value of money two fundamental assumptions are made. These are
related to the behavior of 'V' and 'Y'. It is assumed that:
i.
'V', the velocity of circulation of the currency depends upon consumption patterns of
the people and the size of their income. Both these things are not likely to alter
significantly in the short run with any changes in the quantity of money (M).
Therefore over a short interval, 'V' can be assumed to be constant.
ii.
The level of real income (Y) depends upon the availability of resource supplies and
technological conditions. These factors are not likely to alter in the short run with the
variations in the quantity of money (M).
If these two assumptions are granted then the only dependent variable that remains in the equation is
the price level 'P'. Hence, the conclusion at once follows: with 'V' and 'Y' remaining constant, 'P' will
vary directly and proportionately with 'M'. This can be illustrated by the following example.
1. Let, M = 300, V = 4, Y = 600, then find out the P or the price level.
Solution: Consider the equation 7.2,
MV = PY
300*4 = P(600)
P = 2.
P or M
V
Y
P .Eq. 7.3
Since 'V' and 'Y' are constant, 'M' and 'P' must vary directly and proportionately. If M is doubled P
will also be doubled. Similarly, when 'M' is halved, P is also halved.
The price level directly and proportionately depends upon quantity of money. But price level is
inversely related to the value of money. Hence, value of money is inversely proportional to the quantity
of money.
Money is general purchasing power. Therefore, the capacity of a unit of money to purchase more or less
goods will depend upon the level of prices.
Page 14 of 23
Rise in P
Fall in value of M
Decrease in M
Fall in P
Rise in value of M
Today in every country wherever commercial banks exist, a Central Bank is a must. Central banks have
been established and have come into prominence in the present century. With the progress of the
banking business, central banks acquire an essential role. Modern central banks, such as the Federal
Reserve Bank, the Bank of England, the Reserve Bank of India and others perform a variety of
functions.
7.6.2.1. Roles and Functions of a Central Bank
The following are the functions of the central bank:
It acts as a note issuing agency
It acts as a banker to the state
It acts as bankers banker
It controls credit
It acts as a lender of the last resort
It manages exchange rate
Some of the roles and functions are discussed in detail as below.
Note Issuing Agency
The central Bank of India has the monopoly over issuing notes in the country. Except for the one
rupee notes which are issued by the Ministry of Finance of the Government of India, all other
currency notes are issued by RBI. Since 1956, RBI is to keep a minimum reserve of gold and
foreign exchange securities and given this reserve it can issue notes to the extent it thinks
desirable from the point of view of the economic condition of the country.
Banker to the State
As a banker to the government, the Central Bank performs a variety of functions. All the
balances of the central government are kept with RBI. On this, the Central Bank pays no interest.
The Central Bank receives and makes payment on behalf of the government. RBI has to arrange
for issue of new loans and manage public debt. It also gives short term loan to the Government. It
is in charge of supplying currency and maintaining fiduciary reserves and foreign exchange
reserves. It is the only financial agency that can issue currency. It also has to control the rate of
exchange of the currency in foreign trade and maintain the value of currency internally. It needs
to provide financial and loan resources and maintain these accounts for the government.
Bankers Banker
The Central Bank acts as bankers bank in three capacities. It acts as:
Custodian of the cash reserve of the commercial banks
Lender of the last resort
A bank of central clearance, settlement and transfer
Page 16 of 23
The commercial banks need to keep a fixed portion of their deposit as reserve with the Central Bank.
This reserve can help the Central Bank in the control of issue of credit by commercial bank. In case of
an emergency the commercial bank can turn to the Central Bank for aid. This help may be in the form
of a loan on the strength of foreign securities or by discounting of bills of exchange. Hence, the Central
Bank is known as lender of the last resort.
Operational
Instruments of
Monetary Policy
Intermediate
Targets
For example,
Short-term market
interest rates,
reserve
requirements
Indicators with
a reliable connection
with future inflation.
For example, money
supply, exchange
rate, inflation
forecast
Ultimate policy
Target
Normally inflation,
but could also
include reference to
output or
employment
The figure 7.5 displays how the Central Bank will perform the credit control.
Page 17 of 23
money multiplier would be decreased and the capacity of the bankers to create credit will also reduce to
that extent. Therefore, the supply of money would also decrease. But when the reserve requirement is
reduced (for example, from 10 to 8 per cent) by the central bank, the money multiplier would increase
and the capacity for credit expansion would be enhanced. Hence, the supply of money would also
increase.
By buying the securities or bonds, the Central Bank puts more money in the hands of people and
bankers. This helps in the expansion of credit. RBI is shifting to open market operations (OMO), both
outright purchase and sale and, repo and reverse repo transactions, for the liquidity management in the
economy.
Repo means purchase of government securities by RBI with an agreement to sell back at
a specified rate and reverse repo means the sale of government securities by RBI with an
agreement to buy back at a specified rate.
In order to increase money supply in the economy, the RBI purchases government security. It sells
securities to siphon off the liquid cash and reduce money supply. It has emerged as a powerful tool of
monetary policy. The buyer of the security writes a cheque drawn on his bank (commercial bank) in
favor of the Central Bank. The reserves of the commercial bank are reduced while paying the central
bank. Hence, the credit creation capacity of the commercial bank is also reduced.
The Bank Rate is the official rate of interest declared by the central bank. It is that rate
which the Central Bank charges on the rediscount facility and assistance that it provides
commercial banks. The rate of interest charged by commercial banks is somewhat
higher than the bank rate.
A fall in the Bank Rate makes Central Bank assistance cheaper. The bankers are therefore induced to
borrow more from the Central Bank and supply more credit. The rate of interest charged by bankers
also falls, as it is related to the bank rate. Therefore investment demand for bank credit increases.
In the opposite case, the Central Bank can undertake exactly contrary measures to contract the credit
supply. It can increase reserves requirement, sell the securities and raise the bank rate. All these steps
reduce capacity of the bankers to supply credit and also make credit resources dearer. Therefore,
investors demand for bank credit tends to fall.
During periods of inflation when price level is rising sharply, the Central Bank follows a contractionary
policy. However, during periods of deflation when price level is low and declining and output and
employment levels are below full employment capacity, the Central Bank follows expansionary policy.
7.7.1.2. Qualitative Credit Control Measures
Qualitative measures involve direct credit control. Sometimes, quantitative credit control measures are
inadequate or are likely to be harmful. Quantitative methods apply uniformly and to the same extent to
Page 19 of 23
all bankers. But if the Central Bank finds that only a few or specific bankers are misbehaving then it has
to apply qualitative methods to individual bankers. These may be in the form of special reserve
requirement, moral appeal and advice or even direct action against defaulting bankers.
e.
f.
g.
h.
i.
j.
Initially, the Reserve Bank of India announced all its monetary measures twice a year in the Monetary
and Credit Policy. Of late, monetary policy has become dynamic in nature as RBI reserves its right to
alter it from time to time, depending on the state of the economy.
Other Variables
Interest rates affect other variables in the economy. Higher interest rates increase the value of the
currency (through hot money flows). This causes problems for exporters worsening current account.
Higher interest rates also have a disproportionate effect on the volatile real estate market.
Inflation Expectations
If people have low inflation expectations then, it is much easier to keep inflation low. The average man
as a consumer or a firm goes by 'expectations' about future changes in the monetary policy.
Normally, the average annual growth rate of price level is said to be permissible and desirable to the
extent of 4 per cent. This can compensate for real growth rate of income (GDP). But if people expect
higher or lower rate of inflation in the future then their reactions alter and cause disturbances in the
economy. Therefore, the best thing for the monetary authority to do is to maintain a steady growth rate
of money supply and maintain steady rate of inflation.
The monetarists believed that the monetary policy should be able to allow for a rise in the growth rate
and at the same time not result in either inflation or deflation.
Levels of Government Debt
Increasing levels of government debt can generate upward pressure on interest rates. To attract enough
people to buy government bonds, interest rates on these securities rise and thus, creating this upward
pressure.
7.10. Summary
Here is a quick recap of what we have learnt so far.
During monetary expansion, lower interest rates cause an increase in both consumer and fixed
capital spending thereby increasing current equilibrium national income.
An expansion in fiscal policy adds directly to Aggregate Demand (AD), but if financed by higher
government borrowing, creates higher interest rates and lower investment. The net result (by
adjusting the increase in government spending) (G) is the same increase in current income.
As the investment spending is lower, the capital stock is lower than it would have been, resulting
in lower future income.
When the economy is in a recession, business and consumer confidence is very low. Deflationary
pressures are taking hold. In such a situation, monetary policy may be ineffective in increasing
current national spending and income.
Few economists argue that the short term changes in monetary policy do impact quite quickly
and strongly on consumer and business behavior. Instances can be cited of domestic demand in
both the United States and the UK.
There may be factors which make fiscal policy ineffective aside from the usual crowding out
phenomena. Future-oriented consumption theories hold that individuals undo government fiscal
policy through changes in their own behavior.
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Fiscal policy cannot be seen in isolation and has to be viewed in conjunction with monetary
policy.
7.11. References
7.11.1. Book References
Oliver Blanchard, Macroeconomics, Pearson Education Publications, 4th edition, 2007
Ahuja, Macroeconomics Theory and Policy, S.Chand Publications, 2008
Gregory Mankiw, Macroeconomics, Worth Publications, 6th edition, 2008, Chapter 4 (pg 76 to
90), Chapter 14 (pg 406 to 419), and Chapter 15 (pg 431 to 452)
7.11.2. Web References
Reserve Bank of India
www.rbi.org.in
Ministry of Finance, Government of India
http://www.finmin.nic.in/
Indian monetary policy 2009-10 second quarter review
http://www.stockmarketsreview.com/news/indian_monetary_policy_2009_10_second_quarter_re
view_20091027_1438/
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