ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fiscal policy tools are used by governments to influence the economy. These primarily include changes to levels of taxation and government spending. To stimulate growth, taxes are lowered and spending is increased. This often involves borrowing by issuing government debt.

Detailed explanation-2: -Understanding Expansionary Policy Expansionary policy is intended to boost business investment and consumer spending by injecting money into the economy either through direct government deficit spending or increased lending to businesses and consumers.

Detailed explanation-3: -Expansionary fiscal policy tools include increasing government spending, decreasing taxes, or increasing government transfers. Doing any of these things will increase aggregate demand, leading to a higher output, higher employment, and a higher price level.

Detailed explanation-4: -A contractionary fiscal policy involves the decrease of government purchases and/or an increase in taxes in order to decrease aggregate demand. The Federal Reserve lowers the target for the federal funds rate.