3 Aspects of fiscal policy Suppose the economy had been prod

3. Aspects of fiscal policy

Suppose the economy had been producing at Natural Real GDP but is now experiencing a recession. Which of the following are discretionary fiscal policies that could bring the economy closer to Natural Real GDP? Check all that apply.

In the preceding scenario, is the discretionary fiscal policy needed to bring the economy closer to Natural Real GDP an example of expansionary fiscal policy or contractionary fiscal policy?

Solution

Aswer- If the financial system is experiencing a recession, since output is less than natural real GDP. The result is a recessionary gap. To augment aggregate,
demand then motion the financial system towards natural real GDP, policymakers should enforce a discretionary fiscal policy, certain so slicing taxes or
increasing government leading over countrywide parks. A complication expand and a discount among conclusion on instruction would have the overturn effect,
because they would reduce amount demand.
As explained previously, policymakers attempt to pace the economic system oversea of the recessionary gap through enforcing discretionary coverage that
stimulates volume demand. They do it by means of growing governance purchases and/or lowering taxes. This is regarded so expansionary fiscal
policy.