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'Fiscal policy can be used to smooth out the business cycle, bringing output down when it's higher than full-employment output and stimulating it
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"Fiscal policy can be used to smooth out the business cycle, bringing

output down when it's higher than full-employment output and stimulating it when its lower than full-employment output"
(Butters & Asarta, 2019). "According to the results an efficient fiscal policy would: in terms of an expansionary policy, use government spending as a means to stimulate the economy instead of tax cuts and in the case of a contractionary policy use government revenue (higher taxes) so that the costs of this policy in terms of output lost are lower" (Gogas & Pragidis, 2015). When the economy is in a recession, to increase output and reduce unemployment an expansionary fiscal policy is started which increases government spending or decreases the taxes. When inflation rises contractionary fiscal policy can be a solution. The contractionary fiscal policy can either decrease government purchases and/or increase taxes. This will cause a decrease in aggregated demand, reduce output and inflation.


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