Question

would you pursue expansionary or contractionary fiscal policy?

would you pursue expansionary or contractionary fiscal policies? Explain why this is your position, based on the economic data youve collected and analyzed so far.

Answer 1

It has been observed that currently the real GDP of the economy has been falling and economy is operating below the potential level of Real GDP in the economy causing recessionary gap in the economy. The prices are also falling and inflation rate in the economy is falling and unemployment rate is rising. In this scenario, in order to eliminate the recessionary gap in the economy, the need of the hour is to pursue Expansionary fiscal policy by the government which will increase government expenditure and also reduce tax rate in the economy. This will increase the level of aggregate demand in the economy and move real GDP of the economy closer to the potential level of Real GDP in the economy and thus help in eliminating recessionary gap in the economy.