ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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raising taxes
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increasing government spending
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cutting production of consumer good
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raising the discount rate
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Detailed explanation-1: -There are two kinds of fiscal policy which is contractionary and expansionary fiscal policy. Contractionary fiscal policy is said to be in action when the government reduces spending and increases the taxes at the same time in the country.
Detailed explanation-2: -Contractionary fiscal policy includes raising taxes, decreasing spending, or a combination of the two. These actions reduce an economy’s aggregate demand.
Detailed explanation-3: -The Federal Reserve uses three main contractionary monetary tools: increasing interest rates, increasing banks’ reserve requirement, and selling government securities.
Detailed explanation-4: -The answer is b). Contractionary fiscal policies are increases in taxes or cut in government spending. Holding the dollar value the same, cut in government spending is more contractionary than the same increase in taxes, because government spending carries a larger multiplier.
Detailed explanation-5: -There are three components of the Fiscal Policy of India: Government Receipts. Government Expenditure. Public Debt.