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What is expansionary fiscal policy?

What is expansionary fiscal policy?

Expansionary fiscal policy—an increase in government spending, a decrease in tax revenue, or a combination of the two—is expected to spur economic activity, whereas contractionary fiscal policy—a decrease in government spending, an increase in tax revenue, or a combination of the two—is expected to slow economic …

What is the switching policy?

One is expenditure changing policy and the other is expenditure switching policy. More specifically it is a policy to balance a country’s current account by altering the composition of expenditures on foreign and domestic goods (see Balance of payments account).

What are expenditure reducing policies?

These are policies designed to lower real incomes and aggregatedemand and thereby cut the demand for imports. E.g. higher direct taxes, cuts in government spending or an increase in monetary policy interest rates.

What are the two fiscal policies?

There are two main types of fiscal policy: expansionary and contractionary.

What is switching expenditure?

Expenditure switching is a macroeconomic policy that affects the composition of a country’s expenditure on foreign and domestic goods. More specifically it is a policy to balance a country’s current account by altering the composition of expenditures on foreign and domestic goods (see Balance of payments account).

Why are expenditure changing and expenditure switching policies important?

Expenditure Changing and Expenditure Switching policies In an open economy setting, policymakers need to achieve two goals of macroeconomic stability, viz. internal and external balances.

How are barriers to trade used to switch expenditures?

Involve increased barriers to trade (tariffs, quotas or protectionist subsidies) aimed at switching the expenditures of domestic consumers from imported goods and services to domestically produced goods and services.

When does nominal exchange rate lead to expenditure switching?

Akashdeep singh Nominal exchange rate changes can lead to ‘expenditure switching’ when they change relative international prices. A traditional argument for flexible nominal exchange rates posits that when prices are sticky in producers’ currencies, nominal exchange rate movements can change relative prices between home and foreign goods.

How does the government reduce the current account deficit?

Expenditure reducing policies Any government policy designed to reduce demand in the economy and so reduce consumer spending in the economy (and on imports in particular) falls into this category. On the fiscal policy side the government could increase taxes or reduce public spending.

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