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Households have less disposal income to spend. Lower disposal income decreases consumption. An increase in taxes also reduces profits available to businesses and they cut down their investment expenditures. Consumption and private investment are part of GDP, so GDP falls as a result. However, this fall is magnified by the multiplier effect.
Contractionary Fiscal Policy Flashcards | Quizlet. CH 8. Contractionary Fiscal Policy. Contractionary FP statement. Click the card to flip 👆. A restrictive (preventive) form of FP generally used to control demand-pull inflation. Click the card to flip 👆. 1 / 30.
Study with Quizlet and memorize flashcards containing terms like The government runs a budget surplus., This means injections into the economy from the government sector fall, and withdrawals from the economy increases., If the government spends less on education, health or other infrastructures, the firms who are paid to provide these goods and services earn less profit. and more.
Contractionary Fiscal Policy. Fiscal policy used to decrease aggregate demand or supply. Deliberate measures to decrease government expenditures, increase taxes, or both. Appropriate during periods of inflation. Budget Surplus. a situation in which the government takes in more than it spends. Built-In Stabilizer.
Mar 23, 2024 · fiscal policy. use of taxes and government spending to affect the economy. goal of fiscal policy. to shift aggregate demand (increase or decrease depending on circumstances) mandatory spending. spending the government does not have any choice about; entitlements; requires a change in the law to change spending levels. discretionary spending.
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