Question

How can expansionary and contractionary tax policies be used to manage the economy? Be sure to give your answer in two to three sentences.

Answer 1

Expansionary and contractionary policies can be used to encourage or discourage economic growth. Expansionary policies generally lower taxes and give consumers and producers additional money, which encourages spending and growth. This is done when unemployment is high. On the other hand, contractionary policies generally raise taxes, which can give consumers and producers less to spend. This can cause less economic growth, but is necessary when the economy is growing too quickly and inflation is rising.

the difference between expansionary policy and contractionary policy

expansionary policies are used to stimulate the economy and reduce unemployment

contractionary polices are used to reduce economic growth and combat inflation

Answer 2

These policies are mainly used to maintain economic activity or boost it during a downturn. Contractionary fiscal policies on the other hand are used to slow down aneconomy by measures such as increasing taxes and decreasing government spending. One main reason to use this type of policy is to control inflation.