ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth.

Detailed explanation-2: -An increase in taxes or a decrease in spending during an economic expansion can work to eliminate the budget deficit and pay off some of the government debt. 2. The government might want to reduce aggregate demand if it believes that the economy is expanding beyond its long-run capabilities.

Detailed explanation-3: -Fiscal policy is defined as the policy under which the government uses the instrument of taxation, public spending and public borrowing to achieve various objectives of economic policy. Simply put, it is the policy of government spending and taxation to achieve sustainable growth.

Detailed explanation-4: -The increased government spending may create a multiplier effect. If the government spending causes the unemployed to gain jobs then they will have more income to spend leading to a further increase in aggregate demand.

Detailed explanation-5: -Some economists propose tax policies to promote economic growth. This approach may imply a qualitative restructuring of the tax system (for example, the substitution of taxes on consumption for taxes on income) or special tax advantages to stimulate saving, labour mobility, research and development, and so on.