ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary fiscal policy is said to be in action when the government increases the spending and lowers tax rates for boosting economic growth. This increases consumption as there is a rise in purchasing power.

Detailed explanation-2: -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-3: -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-4: -Expansionary fiscal policy increases the level of aggregate demand, through either increases in government spending or reductions in taxes.

Detailed explanation-5: -A contractionary policy is a tool used to reduce government spending or the rate of monetary expansion by a central bank to combat rising inflation. The main contractionary policies employed by the United States include raising interest rates, increasing bank reserve requirements, and selling government securities.