Final answer:
In 1975, President Ford's proposed 10% tax reduction represented an expansionary fiscal policy designed to boost economic activity by increasing aggregate demand. Similar policies were used in the 2007-2009 Great Recession, involving both tax cuts and spending increases, though such actions are often subject to political debates regarding the best method of implementation.
Step-by-step explanation:
In 1975, President Ford's proposal of a temporary 10% tax reduction in response to an oil price increase exemplifies an expansionary fiscal policy. This type of policy is implemented to increase the level of aggregate demand through tax reductions or increases in government spending. It is designed to boost economic activity by putting more money in the hands of consumers and businesses, encouraging spending and investment. During the 2007-2009 Great Recession, a similar policy was used when the Obama administration and Congress passed an $830 billion package involving both tax cuts and increases in government spending. However, this federal stimulus was partly neutralized by the spending cuts from state and local governments affected by the recession.
Expansionary fiscal policy is often debated politically, with conservatives and Republicans typically preferring tax cuts, while liberals and Democrats are more likely to support increases in spending. These policy decisions shift the aggregate demand curve outward, indicating higher economic activity. On the other hand, contractionary fiscal policy would involve decreasing aggregate demand by increasing taxes or cutting government spending, leading to reduced economic activity. Ultimately, the effectiveness of these fiscal policies is influenced by the state of the economy and prevailing political perspectives.