What is fiscal policy? Who are the parties involved in creating fiscal policy in the U.S....

What is fiscal policy? Who are the parties involved in creating fiscal policy in the U.S. economy? What are the two general types of fiscal policy? What 2 tools are used to implement fiscal policy? When are the two general types of fiscal policy used according to economic theory? Be specific in your answer.

Expert Solution

What is fiscal policy?

Discretionary policy of the government that is used to govern the economy using fiscal policy tools

Who are the parties involved in creating fiscal policy in the U.S. economy?

It is the federal government comprises of the President and the Congress using its executive and legislative branches.

What are the two general types of fiscal policy?

Expansionary and Contractionary. Under expansionary policy government will stimulate aggregate spending by raising its spending or reducing taxes. It does the opposite under fiscal contraction

What 2 tools are used to implement fiscal policy?

The two tools are taxes and government spending. Besides, there are transfers provided to households.

When are the two general types of fiscal policy used according to economic theory?

The interaction of AD and AS determines the level of price and real GDP in the economy. If, for any reason, the economy is operating at a level which is not close to the full employment level, the government may use its fiscal policy to stimulate the aggregate demand and spending. In case of a recessionary gap, this accommodation is done by increasing government spending or by reducing taxes. Similarly in case of inflationary gap, government wishes the economy to slow down so it reduces spending or increases taxes

Rahul Sunny answered 2 years ago

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