- Created by: Jeon32666
- Created on: 10-02-19 17:55
This policy refers to the manipulation of government spending and tax rates in order to achieve some desired macroeconomic objectives.
Expansionary Fiscal Policy
- An increase in government spending and/or a decrease in tax rates
- It aims to increase aggregate demand in order to increase national income and employment
- A rise in government spending will directly increase aggregate demand, as it is a component of this.
- A decrease in taxes will indirectly increase aggregate demand as it will increase disposable income that people have which will encourage more spending
Contractionary Fiscal Policy
Contractionary fiscal policy involves a cut in government expenditure or an increase…