Explain the aspects of expansionary and contractionary fiscal policy. During which phases of the business cycle would each be appropriate? Expansionary fiscal policy refers to (increases, decreases) in government spending or (increases, decreases) in taxes or both, so that the net effect on aggregate demand (AD) is an increase in net government spending (G). Contractionary fiscal policy is the opposite: a(n) (increase, decrease) in government spending or (increase, decrease) in taxes or both, so that the net effect on aggregate demand is a decrease in net government spending. Expansionary policy would most likely be used during a r_ or (peak, trough) phase. A contractionary policy would most likely be employed near the (peak, trough) of the business cycle as the economy reaches full-employment GDP and the potential for inflation accelerates.
Explain the aspects of expansionary and contractionary fiscal policy. During which phases of the business cycle would each be appropriate? Expansionary fiscal policy refers to (increases, decreases) in government spending or (increases, decreases) in taxes or both, so that the net effect on aggregate demand (AD) is an increase in net government spending (G). Contractionary fiscal policy is the opposite: a(n) (increase, decrease) in government spending or (increase, decrease) in taxes or both, so that the net effect on aggregate demand is a decrease in net government spending. Expansionary policy would most likely be used during a r_ or (peak, trough) phase. A contractionary policy would most likely be employed near the (peak, trough) of the business cycle as the economy reaches full-employment GDP and the potential for inflation accelerates.
Chapter24: Fiscal Policy
Section: Chapter Questions
Problem 5P
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