Question

If the government cuts taxes in order to increase aggregate demand, the action is called?

Solution

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Answered 2 months ago
Answered 2 months ago

Fiscal policy is the government's policy that deals with taxation and spending policies that will determine the macroeconomic conditions of the economy. The two types of fiscal policy are expansionary and contractionary.

If the government cuts taxes in order to increase aggregate demand, this is called expansionary fiscal policy.

Through expansionary fiscal policy, the government can either lower taxes or increase market spending to close the gaps and spur market activity making the economy expand.

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