ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary fiscal policy is intended to boost growth to a healthy economic level, which is required during the business cycle’s contractionary period. The government seeks to reduce unemployment, raise consumer demand, and stop the recession.

Detailed explanation-2: -Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP. Contractionary fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes.

Detailed explanation-3: -During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: aggregate demand curve will shift to the right. When inflation begins to climb to unacceptable levels in the economy, the government should: use contractionary fiscal policy to shift aggregate demand to the left.

Detailed explanation-4: -Contractionary fiscal policy is when the government either cuts spending or raises taxes. It gets its name from the way it contracts the economy. It reduces the amount of money available for businesses and consumers to spend.

Detailed explanation-5: -The purpose of expansionary fiscal policy is to boost growth to a healthy economic level, which is needed during the contractionary phase of the business cycle. The government wants to reduce unemployment, increase consumer demand, and avoid a recession.