😲Contractionary fiscal policy aims to reduce consumer spending and slow economic growth.
📉Contractionary policies are used when aggregate demand exceeds full employment GDP, causing inflationary gaps.
💰This policy may also be used to reduce deficit spending or pay down the national debt.
📈Rapid economic growth can lead to inflation and economic crises.
🔒Unemployment rates that are too low can cause labor shortages and push wages higher.
Why do governments implement contractionary fiscal policies?
—Governments implement contractionary fiscal policies to control inflation and prevent economic crises caused by rapid economic growth.
What are some measures of contractionary fiscal policy?
—Measures of contractionary fiscal policy include raising taxes, cutting government spending, and limiting business investment.
How does contractionary fiscal policy affect consumer spending?
—Contractionary policies reduce consumer spending by restricting disposable income through tax increases and cuts to social welfare programs.
What are the consequences of rapid economic growth?
—Rapid economic growth can lead to inflation, labor shortages, and wage increases, which can have undesirable consequences for the economy.
Why are contractionary fiscal policies generally politically unpopular?
—Contractionary fiscal policies involve tax increases and cuts to government spending, which are often perceived negatively by the public.
00:05Contractionary fiscal policy is implemented by governments to slow economic growth.
00:13When aggregate demand exceeds full employment GDP, inflationary gaps occur.
00:24Contractionary policies can be used to reduce deficit spending or national debt.
01:26Rapid economic growth can lead to inflation and economic crises.
01:30Unemployment rates that are too low can cause labor shortages and push wages higher.
