GENERAL KNOWLEDGE

Detailed explanation-1: -Fiscal policy is defined as the policy under which the government uses the instrument of taxation, public spending and public borrowing to achieve various objectives of economic policy. Simply put, it is the policy of government spending and taxation to achieve sustainable growth.

Detailed explanation-2: -Fiscal policy that increases aggregate demand directly through an increase in government spending is typically called expansionary or “loose.” By contrast, fiscal policy is often considered contractionary or “tight” if it reduces demand via lower spending.

Detailed explanation-3: -Expansionary fiscal policy: This policy is designed to boost the economy. It is mostly used in times of high unemployment and recession. It leads to the government lowering taxes and spending more, or one of the two.

Detailed explanation-4: -Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending.

Detailed explanation-5: -There are three types of fiscal policy. They are neutral policy, expansionary policy, and contractionary policy.