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: -These policies are intended to increase demand and aggregate spending. The goal of expansionary policy is to boost the economy during periods of slow growth or recession, though it may unintentionally increase the rate of annual inflation.

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: -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-5: -The Federal Reserve’s expansionary monetary policy often takes a three-pronged approach: Lowering interest rates. Reducing the reserve requirement (the amount of cash banks must keep on hand) Buying back government securities.