ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It takes too long to work
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It is unpopular to raise people’s taxes
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It works too quickly
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It leads to increases in the national debt
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Detailed explanation-1: -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-2: -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-3: -Contractionary fiscal policy is used to slow economic growth, such as when inflation is growing too rapidly. The opposite of expansionary fiscal policy, contractionary fiscal policy raises taxes to cut spending. As consumers pay more taxes, they have less money to spend, and economic stimulation and growth slow.
Detailed explanation-4: -Why is contractionary monetary policy rarely used? It risks creating high inflation that can eventually turn into hyperinflation.