Economics Fiscal Policy Questions
Expansionary fiscal policy refers to the use of government spending and taxation policies to stimulate economic growth and increase aggregate demand. This policy involves increasing government spending, reducing taxes, or a combination of both, in order to boost consumer and business spending, encourage investment, and create jobs.
On the other hand, contractionary fiscal policy aims to slow down economic growth and reduce inflationary pressures. It involves decreasing government spending, increasing taxes, or a combination of both, in order to reduce aggregate demand and control inflation. This policy is typically implemented during periods of high inflation or when the economy is overheating.
In summary, the main difference between expansionary and contractionary fiscal policy lies in their objectives and the measures taken to achieve them. Expansionary policy aims to stimulate economic growth, while contractionary policy aims to control inflation and slow down economic activity.