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Discuss the economic logic behind the ‘expansionary fiscal contraction’ policy that is being adopted during the...

Discuss the economic logic behind the ‘expansionary fiscal contraction’ policy that is being adopted during the current recession. Explain the economic model that informs this policy stance and describe the key differences with the model that recommended a diametrically opposite policy stance during the Great Depression

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Answer #1

Currently austerity measures adopted by US is part of expansionary fiscal contraction just by decreasing government spending which reduces gross national debt and at same time private sector spending increases which compensates for loss of economic output.

However great depression saw an exact opposite stance where Government spending was high enough and taxes were lowered to lift economic output and recession phase by injection of liquidity in market.

Current recession can be lifted by expansionary policy which reduces government debt significantly however in great depression the ecineco needs mega push to lift from recession curve.

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