Sample interview questions: Can you explain the concept of fiscal policy and its role in public finance?
Sample answer:
1. Introduction to Fiscal Policy:
Public finance revolves around the revenue and expenditure decisions of the government. Fiscal policy delves into the influence of government taxes, expenditures, and borrowing on the economy. It involves deliberate adjustments in these aspects to achieve specific economic objectives.
2. Objectives of Fiscal Policy:
a) Economic Growth: Governments employ fiscal policy to stimulate economic growth, particularly during downturns. Expansionary strategies involve increasing government spending or reducing taxes to infuse money into the economy.
b) Economic Stability: Fiscal policy helps counteract economic fluctuations. When faced with recessions, the focus shifts to increasing aggregate demand. Conversely, during periods of excessive growth, the government aims to moderate demand.
c) Full Employment: Governments strive to maintain a state of full employment in the economy. Fiscal interventions are designed to ensure a balance between labor supply and demand.
d) Equitable Income Distribution: Fiscal policy can address income inequality by shifting resources toward lower-income individuals and groups through progressive taxation and social welfare programs.
e) Price Level Stability: Governments use fiscal policy to mitigate inflation. Restrictive fiscal policies, including tax increases or spending cuts, can dampen inflationary pressures.
3. Types of Fiscal Policy:
a) Expansionary Fiscal Policy: This strategy involves raising government spending or lowering taxes to stimulate aggregate demand. It is usually invoked during economic downturns to promote growth.
b) Contractionary Fiscal Policy: This approach entails cutting government expenditures or raising taxes. It is employed when addressing ec… Read full answer
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