ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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taxes were cut
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the government bailed out GM
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the Fed decrease the fed funds rate
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taxes were increased
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Detailed explanation-1: -Instead, they can draw on contractionary fiscal policy tools, such as increasing taxes or decreasing government spending or government transfers. Doing any of these things will decrease Marthlandia’s aggregate demand, which leads to lower output, lower employment, and a lower price level.
Detailed explanation-2: -An example of contractionary fiscal policy could be when the government decides to decrease government spending. Meaning, that government programs, like the forest service, healthcare benefits, or the military, will receive less funding.
Detailed explanation-3: -The Federal Reserve uses three main contractionary monetary tools: increasing interest rates, increasing banks’ reserve requirement, and selling government securities.
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.