What Is Fiscal Contraction?


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Meg Hayes answered
Fiscal policy is an economic policy and it refers to the using of government expenditure, and also taxation, known as revenue collection, in order to influence the economy.

There are several different ways that fiscal policies can have an effect on the economy of a country.

• Identification.

Fiscal policies are control by the US, Congress and the president (respectively), which are the executive and legislative branches of the United States government.

• Types

Types of fiscal policies can include things like spending measures and taxation by the government. Certain fiscal policies such as public spending increases and cutting taxes can be used by the government if that country is going through a time where the economy is weak.

• Effects.

The implantation of fiscal policies into a country's economy can have effects such as decreasing or increasing the rate of unemployment or the GDP (Gross Domestic Product).

When implemented, fiscal policies can often have a kind of multiplier effect, which means that the government increases their spending which means that the demand for services and goods increases. Which therefore leads to a rate of higher rate of employment and economic growth.

• Successful examples.

A certain fiscal policy was introduced into the United State's economy just a couple of weeks after President Obama's administration. This policy was the economic stimulus package of 2009, which was designed to stimulate and improve the economy.

• Disadvantages.

Certain fiscal policies, such as a higher rate of government public spending, can result in an inflation increases. This has a kind of domino effect as interest rates increases which causes investment rates to decrease because the cost of borrowing is raised. The prices of goods and services goes up which stops people from spending their money.

So fiscal policies have their advantages and disadvantages, but it is important for the government to consider them wisely before implementing certain ones i.e. High government spending.

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