ECONOMICS (CBSE/UGC NET)

ECONOMICS

FISCAL POLICY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Government policies to try and decrease the output of the economy in times of excessive inflation by increasing taxes or decreasing spending.
A
Supply-Side Economics
B
Demand-Side Economics
C
Contractionary Fiscal Policy
D
Expansionary Fiscal Policy
Explanation: 

Detailed explanation-1: -An expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth. A contractionary fiscal policy raises rates or cuts spending to prevent or reduce inflation.

Detailed explanation-2: -The Government controls its spending when the expenditure from the private side is high. Governments can reduce private spending by increasing taxes. This is one of the fiscal policies of the Governments to control inflation.

Detailed explanation-3: -To combat inflation, the government could use contractionary fiscal policy. In this case, it might raise taxes and decrease government spending in an attempt reduce the total level of spending. Many economists suggests that monetary policy, enacted by the Federal Reserve, is more effective for reducing inflation.

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.

Detailed explanation-5: -Answer and Explanation: The correct answer is Option A. The sale of government bonds by the Federal Reserve to banks would cause a decrease in the money supply because the Fed will exchange the bonds for money. This will reduce the rate of inflation.

There is 1 question to complete.