ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -According to Keynesian economics, increased government spending raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions.

Detailed explanation-2: -The downswing of the business cycle towards a trough is called an economic contraction. It is associated with: decrease in production/output • increase in unemployment • decrease in wages • decrease in consumer spending.

Detailed explanation-3: -What Happens During Economic Contraction? When an economy enters into contraction, real gross domestic product (GDP) growth slows and unemployment rises.

Detailed explanation-4: -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.