If the government engages in expansionary fiscal policy it would __________________, and if it engages in contractionary fiscal policy it would__________________________Group of answer choicesincrease taxes, increase government purchasesdecrease taxes, decrease government purchasesincrease taxes, decrease government purchasesdecrease taxes, increase government purchases
Question
If the government engages in expansionary fiscal policy it would __________________, and if it engages in contractionary fiscal policy it would__________________________Group of answer choicesincrease taxes, increase government purchasesdecrease taxes, decrease government purchasesincrease taxes, decrease government purchasesdecrease taxes, increase government purchases
Solution
If the government engages in expansionary fiscal policy, it would decrease taxes, increase government purchases. On the other hand, if it engages in contractionary fiscal policy, it would increase taxes, decrease government purchases.
Here's why:
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Expansionary Fiscal Policy: This is a form of fiscal policy that involves reducing taxes and increasing government spending. The goal is to stimulate economic growth by increasing the amount of money in circulation. Lower taxes mean more disposable income for consumers, leading to increased spending. Increased government purchases inject more money into the economy, further stimulating growth.
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Contractionary Fiscal Policy: This is the opposite of expansionary fiscal policy. It involves increasing taxes and reducing government spending. The goal is to slow down economic growth to prevent inflation. Higher taxes mean less disposable income for consumers, leading to decreased spending. Decreased government purchases mean less money is injected into the economy, slowing down growth.
Similar Questions
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