Question

During an expansionary phase of the business cycle the government could implement a contractionary fiscal policy in order to — encourage investment promote spending address any inflation issues create jobs

Answer 1

During an expansionary phase, the government could implement a contractionary fiscal policy to address inflation by decreasing aggregate demand.

Step-by-step explanation:

During an expansionary phase of the business cycle, the government could implement a contractionary fiscal policy in order to address any inflation issues. Contractionary fiscal policy involves either cuts in government spending or increases in taxes, which decreases the level of aggregate demand. This is appropriate when the economy is producing above its potential GDP, and it offsets inflation by reducing consumption, investment, and government spending.

In contrast, expansionary fiscal policy, which includes lower taxes or increased government spending, is most appropriate during a recession to stimulate output and decrease unemployment. However, when the economy is already expanding, a contractionary approach is taken to cool down the economy and prevent it from overheating, which can lead to inflation.