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fiscal policy

Can anyone help clarify? All I need are a couple of sentences to explain these questions.

1. What is the final impact of contractionary fiscal policy on the price-level and real output?

2. What is the final impact of expansionary fiscal policy on the price-level and real output?

3. What are the impacts of an easy monetary policy on the price-level and real output? When would an easy monetary policy be appropriate?

4. What are the impacts of a tight monetary policy on the price-level and real output? When would a tight monetary policy be appropriate?

Solution Preview

Dear Student,

1. Contractionary fiscal policy occurs when net government spending is reduced either through higher taxation revenue or reduced government spending or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus. During periods of high economic growth, a budget surplus can be used to decrease activity in the economy. A budget surplus will be implemented in the economy if inflation is high, in order to achieve the ...

Solution Summary

Types of fiscal policy are denoted.

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