Congress.gov. State and local governments in the United States have balanced budget laws; they cannot spend more than they receive in taxes. That's a good discipline, but it also reduces lawmakers' ability to boost economic growth in a recession. The purpose of expansionary fiscal policy is to boost growth to a healthy economic level, which is needed during the contractionary phase of the business cycle. But the Laffer Curve states that this type of trickle-down economics only works if tax rates are already 50% or higher., The Trump administration used expansionary policy with the Tax Cuts and Jobs Act and also increased discretionary spending—especially for defense.. It boosts economic growth. Add your answer and earn points. Question. Expansionary Fiscal Policy. The main drawback is that tax cuts decrease government revenue, which can create a budget deficit that's added to the debt. Although reversing tax cuts is often an unpopular political move, it must be done when the economy recovers to pay down the debt. National Conference of State Legislatures. d. an increase in interest rates. It lowers the value of the currency, thereby decreasing the exchange rate. Expansionary Fiscal Policy. The intended goal of expansionary fiscal policy is a. an increase in the level of aggregate output (GDP). The goal of expansionary fiscal policy (such as an increase in government spending) is to shift the _____ curve to the _____. The long-term impact of inflation can damage the standard of living as much as a recession. Accessed Jan. 31, 2020. Politicians often use expansionary fiscal policy for reasons other than its real purpose. The goal of an expansionary fiscal policy is to INCREASE ECONOMIC GROWTH. That's dangerous because it creates asset bubbles, and when the bubble bursts, you get a downturn. Search for an answer or ask Weegy. The goal of expansionary fiscal policy is to increase employment. • Expansionary fiscal policy aims to jumpstart the economy and avoid recession, while contractionary fiscal policy is usually designed to curb rapid inflation. To increase the real GDP and price level When do we use contractionary fiscal policy? "Recession to Recovery, 1960-62, A Case Study in Flexibility Monetary Policy." Why Did Obama Extend the Bush Tax Cuts in 2010? Expansionary policy is used more often than its opposite, contractionary fiscal policy. They also protest any benefit decreases caused by reduced government spending. For example, they might cut taxes to become more popular with voters before an election. Log in or sign up first. Federal Reserve Bank of St. Louis. Other methods, such as transfer payments, tax cuts, and rebates, are aimed at ensuring that funds are … Accessed Jan. 31, 2020. The goal of fiscal policy with regard to economics is to either stimulate the economy or slow it down. An expansionary fiscal policy seeks to increase aggregate demand through a combination of increased government spending and tax cuts. Pages 10 This preview shows page 6 - 8 out of 10 pages. Federal Bank of St. Louis. "The Laughable Laffer Curve." If you are on a personal connection, like at home, you can run an anti-virus scan on your device to make sure it is not infected with malware. Expansionary fiscal policy increases the level of aggregate demand, through either increases in government spending or reductions in taxes. Accessed Jan. 31, 2020. The Treasury Department prints paper currency and mints coins. The Federal Reserve manages monetary policy to keep debt from spiraling out of control. The national debt is close to $23 trillion—which is more than the country produces in a year. When the debt-to-GDP ratio is more than 100%, investors get worried, buy fewer bonds, and send interest rates higher. 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