It is a policy that helps decrease money supply in the economy.
Increased inflation leads to unnecessary problems in the economy. If the government isn’t very careful regarding its expenditure and if there is excess money supply, this policy could lead to inflation. Since borrowing is made easier, companies find it profitable to increase operations and hire new employees. The increase in money supply causes it to lose its importance as regards to the related products, and higher costs are set for limited goods.ĭue to an increase in revenue and profits, there is a rising demand for labor. There is a lack of price stability on various products. It reduces restrictions on loan applications and interest rates, and leads to an increased outpouring of capital into the economy. Hence, it is typically adopted during low-growth phases. It helps fuel the economic growth of the nation, especially during a recession. This would lead to high borrowing and rising government debt. A reduction in taxes would lead to an increase in the deficit of the government’s budget. It increases the expenditure of the government, thereby leading to reduced taxation. There is an increased demand for goods and services, and companies gear up for rising production in terms of quality and quantity. It increases productivity, since it aims at increasing money supply.
It increases the expenditure of the government.
It leads to increased exports and helps maintain balance of trade.
Decision to employ this policy can come from the central bank or the government.
It also causes an increase in the demand for foreign bonds.
It is generally adopted during low economic growth phases.
It is a policy that helps increase money supply in the economy.
The paragraphs below will explain the advantages and disadvantages of both the main policies in detail. However, a third stance called ‘neutral’ has been identified as well, which is normally adopted when the economy is in an equilibrium state. It is mainly divided into 2 types: expansionary and contractionary. It uses a variety of tools for this purpose, in turn, having a profound effect on factors like unemployment, inflation, aggregate demand, and investments. The former is related to taxes and spending, while the latter deals with the supply of money and its effects on the rising and falling interest rates.Ī fiscal policy defines the relationship between taxation and expenditure. In this Buzzle article, you will come across the pros and cons of using expansionary and contractionary fiscal policy.ĭo not get confused between fiscal policy and monetary policy. Click to select) The government collects more tax revenue during an expansion because the stock market is booming.Expansionary and contractionary fiscal policies raise and lower money supply, respectively, into the economy. ICick to selecti The government votes to increase military spending. Help Save & Exit Submit Indicate whether each of the following is an example of an automatic stabilizer or discretionary fiscal policy The government increases the top income tax bracket to 35% (cickto select) automatic stabilizer The tax rate paid by an individual falls from 20% to 15% when l -retionary fiscal policy A person qualifies for unemployment compensation when she loses her job during a recession. Click the box with a check mark for correct answers and click to empty the box for the wrong answers contractionary fiscal policy involvement in a war 7 A tax cut A surge in the stock market An increase in the rate of unemployment Which of the following items would likely contribute to the current government budget deficit? Instructions: You may select more than one answer. Transcribed image text: The purpose of contractionary fiscal policy is to iClick to select)(Click to select)whereas the purpose of expansionary fiscal policy is to (Click to select)(Click to select)
0 kommentar(er)
