Question
Help me to respond discussion Expansionary fiscal policy is a way to fight against recession according to Keynesians. This consists on doing tax cuts to
"Help me to respond discussion"
Expansionary fiscal policy is a way to fight against recession according to Keynesians. This consists on doing tax cuts to stimulate consumptions, increase goverment spendings, or investments. Doing this would shift the Agreggate Demand curve to the right, thus increasing overall GDP. An inflationary gap would be experienced when this type of fiscal policy is used as our AD equilibrium will be above the potential GDP.
Contractionary fiscal policy is a way to fight inflation in a country. This policy would increase tax rates or cut government spendings. Doing this would slow down the economy and move the Aggregate Demand curve to the left, thus decreasing overall GDP. An recessionary gap would be experienced when a contractionary fiscal policy is used.
Right now, I think the president and congress are using expansionary fiscal policy by sending stimulus packages to people as well as other methods that induce spending. The cause of this I believe would be due to the recent pandemic which already slowed down the economy. So now, since we are going through a recession phase, the government should be trying to stop this or lessen the effects of it.
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