Question
Read the case let given below and answer the following questions Expand borrow spend and grow The Union Budget 2021-22 set a roadmap for spending
Read the case let given below and answer the following questions
Expand borrow spend and grow
The Union Budget 2021-22 set a roadmap for spending more in the next few years without worrying about fiscal deficit and higher public debt. The government has also set a five-year long fiscal consolidation path to 4.5 per cent fiscal deficit by 2025-26. This means the government expansionary fiscal stance to support the growth will continue.Clearly, the government is focussing on supporting economic recovery even at the cost of higher public debt or rating action from global agencies. The government spending was very much needed to sustain economic recovery post the Covid lockdown.
i) Why is spending on the part of both the government and consumers so critical for the economy in terms of income, output and employment as it heads towards recession?
ii) What is crowding out and when would you expect it to occur? In the case of substantial crowding out, which will be more successful fiscal or monetary policy?
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