ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A contractionary fiscal policy involves the decrease of government purchases and/or an increase in taxes in order to decrease aggregate demand. The Federal Reserve lowers the target for the federal funds rate.

Detailed explanation-2: -Expansionary fiscal policy is defined as the policy that works towards promoting the consumption in the economy.

Detailed explanation-3: -Both monetary and fiscal policies are used to regulate economic activity over time. They can be used to accelerate growth when an economy starts to slow or to moderate growth and activity when an economy starts to overheat. In addition, fiscal policy can be used to redistribute income and wealth.

Detailed explanation-4: -Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.