An expansionary fiscal policy entails increasing government purchases and/or lowering taxes in order to boost aggregate demand.
The use of government spending and tax policies to influence economic conditions, particularly macroeconomic conditions, is referred to as fiscal policy. These include total goods and services demand, employment, inflation, and economic growth. During a recession, the government may reduce tax rates or increase spending in order to stimulate demand and economic activity. To combat inflation, it may raise interest rates or cut spending to cool the economy.
Deficit spending is typically associated with expansionary fiscal policy. Deficit spending occurs when government expenditures exceed tax and other revenue receipts. In practice, deficit spending is usually the result of a combination of tax cuts and increased spending.
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