Which of the following is NOT a tool of fiscal policy?

Question

Question

This question was previously asked in

Rajasthan RAS Prelims 2023 Official Paper

Answer 1

The Correct answer is Option 2

Key Points

Public Expenditure: This is a tool of fiscal policy. Government spending on infrastructure, health, education, and welfare impacts economic activity. It can stimulate growth during recessions or control inflation during booms. Hence, Statement 1 is incorrect.
Interest Rate: This is NOT a tool of fiscal policy. The interest rate is controlled by the central bank as part of monetary policy, not fiscal policy. Changes in interest rates are used to control money supply and inflation, but this is distinct from fiscal actions. Hence, Statement 2 is correct.
Deficit Financing: This is a tool of fiscal policy. When a government spends more than its revenue, it resorts to deficit financing (borrowing or printing money). This influences economic activity and is a key fiscal strategy during economic downturns. Hence, Statement 3 is incorrect.
Taxation: This is a tool of fiscal policy. Changes in tax rates affect disposable income, consumer spending, and investment. Governments use taxation to control economic activity. Hence, Statement 4 is incorrect.
Hence,The correct answer is: Interest rate Since, Interest rate is a tool of monetary policy, not fiscal policy.