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Examples of expansionary fiscal policy measures include increased government spending on public works (e.g., building schools) and providing the residents of the economy with tax cuts to increase their purchasing power (in order to fix a decrease in the demand).
The concept is often encountered in the context of a government's approach to spending and taxation. A 'procyclical fiscal policy' can be summarised simply as governments choosing to increase government spending and reduce taxes during an economic expansion, but reduce spending and increase taxes during a recession.
One type frequently discussed is when expansionary fiscal policy reduces investment spending by the private sector. The government spending is "crowding out" investment because it is demanding more loanable funds and thus causing increased interest rates and therefore reducing investment spending.
To curtail Unemployment, we would use Expansionary monetary policy which would do the same as above. In order to cure the Current account deficit in the economy, we need to increase the exports by a devaluation , that would, in turn, help in increasing the employment by creating more jobs.
The Expansionary Fiscal Contraction (EFC) hypothesis predicts that, under certain circumstances, a major reduction in government spending (such as austerity measures) that changes future expectations about taxes and government spending will expand private consumption, resulting in overall economic expansion.
Expansionary fiscal policy is an increase in government spending or a decrease in taxation, while contractionary fiscal policy is a decrease in government spending or an increase in taxes. Expansionary fiscal policy can be used by governments to stimulate the economy during a recession. For example, an increase in government spending directly ...
In fiscal year 2005, the deficit began to shrink due to a sharp increase in tax revenue. By 2007, the deficit was reduced to $161 billion; less than half of what it was in 2004 and the budget appeared well on its way to balance once again. Fiscal policy is the application of taxation and government spending to influence economic performance.
The LM curve may shift because of a change in monetary policy or possibly a change in inflation expectations, whereas the IS curve as in the traditional model may shift either because of a change in fiscal policy affecting government consumption or taxation, or because of shocks affecting private consumption or investment (or, in the open ...