4.2 - Fiscal Policy

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Fiscal Policy is controlled by...

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The Government

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Taxing and spending to help the economy grow is referred to as

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expansionary fiscal policy

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Taxing and spending to slow the economy is referred to as

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contractionary fiscal policy

Front

During rapid economic expansion with risk of high inflation, the Federal Government should use...

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a contractionary fiscal policy

Front

During a contraction or recession, when the economy is slowing down (falling real GDP, increasing unemployment rates), the Federal Government should use

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an expansionary fiscal policy

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An example of expansionary fiscal policy would be

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cutting taxes.

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If the unemployment rate is rising and GDP is falling, what fiscal policy action would the federal government MOST likely follow?

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decreasing taxes.

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If an economy experiences a dramatic rise in prices, which fiscal policy action could be taken?

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Reducing government spending

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The Federal government is concerned that economic growth is too high, that it is unsustainable, and that inflation is resulting. Which fiscal policy might be enacted to reduce inflation?

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Increasing taxation

Front

When the government raises taxes, what does it take out of circulation?

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Money