Economic Policy Questions
Expansionary fiscal policy refers to the use of government spending and taxation measures to stimulate economic growth and increase aggregate demand. This policy is typically implemented during periods of economic downturn or recession. It 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 is used to slow down economic growth and reduce inflationary pressures. It is implemented during periods of economic expansion or when there is a risk of overheating in the economy. This policy involves reducing government spending, increasing taxes, or a combination of both, in order to decrease aggregate demand, control inflation, and stabilize the economy.
In summary, the main difference between expansionary and contractionary fiscal policy lies in their objectives and the measures taken. Expansionary policy aims to stimulate economic growth and increase aggregate demand, while contractionary policy aims to slow down economic growth and reduce inflationary pressures.