ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
It takes too long to work
|
|
|
It is unpopular to raise people’s taxes
|
|
|
It works too quickly
|
|
|
It leads to increases in the national debt
|
Detailed explanation-1: -Contractionary policies are often difficult to implement as they may also include increases in tax rates, higher rates of unemployment, and a decrease in government programs and subsidies.
Detailed explanation-2: -The unpopularity of contractionary policy results in ever-increasing federal budget deficits. To make up for the deficit, the government just issues new Treasury bills, notes, and bonds. These annual budget deficits worsen the U.S. debt. It’s over $27 trillion, more than what the United States produces in a year.
Detailed explanation-3: -An unwanted side effect of a contractionary monetary policy is a rise in unemployment. The economic slowdown and lower production cause companies to hire fewer employees. Therefore, unemployment in the economy increases.
Detailed explanation-4: -Expansionary fiscal policy includes either increasing government spending or decreasing taxes. An economy that is producing too much needs to be contracted. In that case, contractionary fiscal policy (either decreasing government spending or increasing taxes) is the correct choice.
Detailed explanation-5: -Increasing government spending on infrastructure that further increases the private sector productivity can increase the aggregate supply.