ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fiscal policy that increases aggregate demand directly through an increase in government spending is typically called expansionary or “loose.” By contrast, fiscal policy is often considered contractionary or “tight” if it reduces demand via lower spending.

Detailed explanation-2: -Expansionary fiscal policy includes tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements. For example, it can increase discretionary government spending, infusing the economy with more money through government contracts.

Detailed explanation-3: -Expansionary fiscal policy increases the level of aggregate demand, through either increases in government spending or reductions in taxes.

Detailed explanation-4: -There are three components of the Fiscal Policy of India: Government Receipts. Government Expenditure. Public Debt.

Detailed explanation-5: -However, expansionary fiscal policy can result in rising interest rates, growing trade deficits, and accelerating inflation, particularly if applied during healthy economic expansions. These side effects from expansionary fiscal policy tend to partly offset its stimulative effects.