Question

What is the difference between fiscal and monetary policy? What does "expansionary fiscal policy" mean? What does "contractionary fiscal policy" mean? What is the impact of an expansionary fiscal policy on the budget when starting from a balanced budget? What will be the impact on the national debt in that scenario?

Answer 1

Fiscal policy refers to the use of government spending and taxation to influence the economy. Expansionary fiscal policy involves increasing government spending and/or reducing taxes to stimulate economic growth. Contractionary fiscal policy involves reducing government spending and/or raising taxes to slow down economic growth.

Step-by-step explanation:

Fiscal and monetary policies are two tools used by governments to manage the economy. Fiscal policy refers to the use of government spending and taxation to influence the economy. When the government implements expansionary fiscal policy, it increases government spending and/or reduces taxes to stimulate economic growth. This can be done by increasing infrastructure projects, providing subsidies, or lowering tax rates. Contractionary fiscal policy, on the other hand, involves reducing government spending and/or raising taxes to slow down economic growth and control inflation.

The impact of an expansionary fiscal policy on the budget when starting from a balanced budget will result in a budget deficit. This means that the government will spend more than it collects in revenue, leading to a negative budget balance. In this scenario, the impact on the national debt would also increase as the government borrows money to finance the deficit.