Expansionary fiscal policy refers to (increases, decreases) in government spending or ases, decreases) in taxes or both, so that the net effect on aggregate demand (AD) is an increase government spending (G). Contractionary fiscal policy is the opposite: a(n) (increase, decrease) in government spending crease, decrease) in taxes or both, so that the net effect on aggregate demand is a decrease in ne nment spending. Eynansionay policy would most likely be used during a r or (neak trough ) phase
Expansionary fiscal policy refers to (increases, decreases) in government spending or ases, decreases) in taxes or both, so that the net effect on aggregate demand (AD) is an increase government spending (G). Contractionary fiscal policy is the opposite: a(n) (increase, decrease) in government spending crease, decrease) in taxes or both, so that the net effect on aggregate demand is a decrease in ne nment spending. Eynansionay policy would most likely be used during a r or (neak trough ) phase
Chapter21: Fiscal Policy
Section: Chapter Questions
Problem 20SQ
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Transcribed Image Text: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
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.
or (peak, trough ) phase.
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