Question

In the United States, the government uses expansionary and contractionary fiscal policies to affect conditions in the economy.

A. increase tax revenue
B. lower inflation
C. lower federal spending
D. end a recession
E. raise total demand for goods
F. reduce tax rate

Answer 1

The government in the United States utilizes expansionary fiscal policy to stimulate the economy during a recession by increasing aggregate demand through increased government spending or tax reductions. Conversely, contractionary fiscal policy is used to combat inflation by decreasing aggregate demand through reduced government spending or tax increases. Both policies are instrumental in maintaining economic stability.

Step-by-step explanation:

In the United States, the government uses expansionary and contractionary fiscal policies to influence economic conditions. An expansionary fiscal policy aims to increase the level of aggregate demand, which can be achieved through increasing government spending or reducing taxes. This policy is typically employed during a recession to stimulate economic growth, reduce unemployment, and end the recession.

It can result in higher tax revenue through increased economic activity but is not primarily directed at increasing tax revenue. On the opposite end, a contractionary fiscal policy is designed to lower inflation by decreasing the level of aggregate demand. This may involve decreasing government spending or increasing taxes, especially when the economy is producing above its potential GDP. Both policies have their place in managing the economy's fluctuations and are components of the aggregate demand/aggregate supply model.