ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
when it is trying to increase government revenue
|
|
|
when it is trying to increase government spending
|
|
|
when it is trying to fight inflation
|
|
|
when it is trying to end a recession
|
Detailed explanation-1: -Contractionary fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes. Contractionary fiscal policy is most appropriate when an economy is producing above its potential GDP.
Detailed explanation-2: -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.
Detailed explanation-3: -In what circumstances would contractionary fiscal policy be recommended? How might you implement this type of policy? When the economy is expanding beyond its long run capabilities. With an increase in taxes and a decrease in spending (budget surplus).
Detailed explanation-4: -Note that the goal of contractionary monetary policy is to decrease the rate of demand for goods and services, not to stop it. So, higher interest rates through contractionary policy can be used to dampen inflation and move the economy back to the price stability component of the dual mandate.
Detailed explanation-5: -Governments can reduce private spending by increasing taxes. This is one of the fiscal policies of the Governments to control inflation.