Your list includes various actions associated with expansionary and contractionary fiscal policies. Here’s a breakdown of each action based on whether it aligns with expansionary or contractionary fiscal policy:
Expansionary Fiscal Policy
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Due to a sudden increase in unemployment, the government decides to extend unemployment benefits to help those who have lost their jobs.
- Rationale: Extending unemployment benefits puts more money into the hands of unemployed individuals, helping to stimulate consumer spending and boost aggregate demand.
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The government provides a temporary tax cut for businesses.
- Rationale: A temporary tax cut increases businesses' cash flow, allowing them to invest more, hire additional employees, and stimulate economic activity.
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There is rising unemployment and reduced consumer spending. The government decides to invest in infrastructure projects, such as building roads, bridges, and schools.
- Rationale: Investing in infrastructure not only creates jobs directly but also boosts demand in the economy, leading to further increases in consumer and business spending.
Contractionary Fiscal Policy
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The government raises corporate taxes on large businesses.
- Rationale: Raising corporate taxes reduces the disposable income of businesses, which may lead to decreased investments and spending, thus slowing down economic growth.
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The government decides to cut subsidies for certain industries, such as agriculture and energy.
- Rationale: Cutting subsidies can lead to higher costs for businesses, potentially resulting in decreased production and increased prices for consumers, which may contract economic activities.
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The government decides to reduce its spending on non-essential programs, such as certain public projects or administrative expenses.
- Rationale: Reducing government spending directly decreases overall demand in the economy, which can slow economic growth and reduce inflationary pressures.
Summary:
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Expansionary Fiscal Policy aims to stimulate the economy through increased spending and tax cuts to counteract unemployment and slow economic growth. Examples include extending unemployment benefits, providing tax cuts for businesses, and investing in infrastructure.
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Contractionary Fiscal Policy seeks to reduce inflation and cool off an overheating economy by decreasing spending or increasing taxes. Examples include raising corporate taxes, cutting subsidies, and reducing government spending on non-essential programs.
These actions illustrate how the government can use fiscal policy tools to address various economic conditions.
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