Expansionary Vs. Contractionary Fiscal Policy
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A government’s fiscal policy involves increasing/decreasing spending and taxes to control the economy. The governments fiscal actions are reflected in the fiscal budget.
When the taxes collected are more than the spending, there’s a budget surplus. Similarly when spending exceeds tax collection, there’s a budget deficit.
Whether the fiscal policy is expansionary or contractionary can be gauged by whether there is budget surplus or budget deficit. The basic rules are given below:
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