Discussion
Which of the Government's policy in respect of public expenditure and revenue has a significant impact on business ?
Answer: B
The policy is fiscal policy.
Fiscal policy is the government's use of public expenditure, taxation and borrowing, set out each year in the Union Budget. Tax rates, subsidies, spending on infrastructure and the size of the deficit directly change demand, costs and profits, so it has a major impact on business.
Monetary policy is run by the central bank (the RBI) through interest rates and money supply, not through public expenditure and revenue. Trade policy governs imports and exports, and foreign exchange policy governs the currency and capital flows; neither is about the government's own spending and revenue.
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