A typical contractionary fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.
What is contractionary fiscal policy?
Contractionary fiscal policy can be regarded as a policy whereby government taxes more than it spends, this can be done through increasing taxable rates as well as decreasing spending.
It is been utilized during times of economic prosperity and it is A typical contractionary fiscal policy that allows government to decrease the level of aggregate demand, through increases in taxes.
One common example of debt-based contractionary fiscal policy that is common in the government setting is the increasing taxes.
For instance, VAT, can be used in reducing the budget deficit even in the absence of cutting government spending.
It should be noted that Economic policy-makers can be categorized into two kinds of tools , which is been used in influencing a country's economy.
The kind of tools that is attributed to this policy are:
Fiscal policy can be attributed government spending as well as revenue collection.
For instance, when the demand is on the low in the economy, in this case, the government can come to the rescue of the economy by using the method that bring an increase its spending so that they can stimulate demand to make the economy to become balance again for the country.
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