Question

Give a brief definition of fiscal policy. What are its economic goals? Explain what type of fiscal policy with the government engage at different phases of the business cycle? Give examples for each case.

Answer 1

Fiscal policy is nothing but the government revenue and expenditure that is used to influence the economy on the whole. The goals of fiscal policy include maintaining a high employment rate, maintain standardized prices and wages, economic growth.Expansionary fiscal policy is used during the contraction phase of a business cycle and this is the reason why people get out of the recession due to the use of this fiscal policy. Contractionary fiscal policy is used during the expansion phase of business cycle and for instance this is done in order to reduce the effect of inflation on the economy on the whole.