Map pling Classify the items below as examples of expansionary fiscal policy, co
ID: 1213306 • Letter: M
Question
Map pling Classify the items below as examples of expansionary fiscal policy, contractionary fiscal policy, or not an example of fiscal policy. Make sure every item is sorted into one of the bins. Expansionary Fiscal Policy Contractionary Fiscal Policy Not an Example of Fiscal Policy An increase in tax rates. An increase in government spending. A decrease in government spending A decrease in taxes. A decrease in transfer payments. An increase in the money supply. A decrease in the money supply. An increase in corporate bonds purchased. A decrease in the unemployment rateExplanation / Answer
In economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure(spending) to influence the economy.[1] According to Keynesian economics, when the government changes the levels of taxation and governments spending, it influences aggregate demand and the level of economic activity. Fiscal policy can be used to stabilize the economy over the course of the business cycle.
The two main instruments of fiscal policy are changes in the level, composition of taxation, and government spending in various sectors. These changes can affect the following macroeconomic variables, amongst others, in an economy:
Fiscal policy can be distinguished from monetary policy, in that fiscal policy deals with taxation and government spending and is often administered by an executive under laws of a legislature, whereas monetary policy deals with the money supply, lending rates and interest rates and is often administered by a central bank.
increase in tax rate-- not an example fiscal policy
An increase in government spending-- expansionary fiscal policy
decrease in government spending- not an example fiscal policy
Decrease in taxes- expansionary fiscal policy
Decrease in transfer payments-- fiscal policy
increase in money supply-- Contradictory fiscal policy
decrease in money supply--Contradictory fiscal policy
increase in corporate bond purchase--fiscal policy
decrease in unemployment rate--fiscal ploicy.
The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies increase aggregate demand while contributing to deficits or drawing down of budget surpluses. They are typically employed during recessions or amid fears of one.
Classical macroeconomics considers fiscal policy to be an effective strategy for the government to counterbalance the natural depression in spending and economic activity that takes place during a recession. As business conditions deteriorate, consumers and businesses cut back on spending and investments.
This rational response on an individual level can exacerbate the situation for the broader economy. The reduction in spending and economic activity leads to less revenue for businesses, which leads to greater unemployment and even less spending and economic activity. During the Great Depression, John Maynard Keynes was the first to identify this self-reinforcing negative cycle in his "General Theory of Employment, Interest, and Money" and identified fiscal policy as a way to smooth out and prevent these tendencies of the business cycle.