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Expansionary Fiscal Policy: Decrease In Taxes

224 Words1 Pages
Expansionary fiscal policy refers to increases in government spending or decreases in taxes or both, so that the net effect on aggregate demand is an increase in net government spending. Contractionary fiscal policy is the complete opposite: increases in taxes or reduced government spending or both, so that the net effect on aggregate demand is a decrease in net government spending. Expansionary policy is utilized when recession phases occur. The contractionary policy will be used at or near the peak of the cycle (business) when the economy reaches full-employment GDP and inflation accelerates may increase. Explain what is meant by a built-in stabilizer and give two examples.

Built-in stabilizers are changes in tax revenues or government
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