Fiscal and Monetary Policies - FiscalPolicies Twopurposes 1 2 : ,AD,spendingandbrin

Fiscal and Monetary Policies - FiscalPolicies Twopurposes 1...

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Fiscal Policies Two purposes: 1. Altering level of gov’t spending 2. Altering taxation and bonds being sold Discretionary Fiscal Policy:   when gov’t takes deliberate actions through legislation to alter  spending and taxation with the purpose of influencing unemployment, AD, spending and bringing the economy back to full employment Contractionary Fiscal Policy:   When the economy is growing too much and inflation is  becoming an issue, the government will try to increase taxation and decrease spending to  discourage people from spending more money.  As a result AD will move to the left Expansionary Fiscal Policy:   When the economy is slow, the government will try to decrease  taxation and increase spending to encourage people to spend more money.  As a result, AD will  move to the right.  Limitations of Fiscal Policy Recognition lag, decision lag, implementation lag, impact lag
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