During a time when the economy of a nation is going through a recession, the federal government takes part in expansionary economic policies. Fiscal policy is a description of two government actions that are carried out by the government so as to control the economy. The first action is taxation. Government spending is the second action, and it can assume the form of wages or social benefits to the employees of government (Ilzetzki, Végh & National Bureau of Economic Research, 2008, p.13). Because both taxation and government spending are a representation of a reversed asset flow, they are considered to be opposite policies. Fiscal policy is regarded as being “expansionary” if its objective is to stimulate the economy of a country, or more particularly, increase the aggregate demand within an economy so as to fight recessions (Benczés, 2008, p.56).
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In conclusion, the federal government utilizes expansionary policies anytime that it feels there is a need to increase the level of the money supply in the economy so as to come out of a recession. The utilization of the expansionary policy tool is significant in the management of low-growth periods within the business cycle.
Benczés, I. (2008). Trimming the sails: The comparative political economy of expansionary fiscal consolidations : a Hungarian perspective. New York: Central European University Press.