Expansionary and Contracting Fiscal Policies

MICRO AND SMALL
BUSINESSES
P3,P4,M2,D2

Expansionary Fiscal Policy
 Expansionary fiscal policies are laws passed by the legislative and
executive branches to increase government spending or lower taxes,
often intending to relieve the economy from a recession. When taxes
decrease for individuals, the government is hoping to boost
consumerism to help businesses and the overall economy. Government
spending contributes to an increase in the nation's growth rate, or gross
domestic product. Less restrictive legislation on business operations
contributes to increased cost savings. Legislation passed to fund job
growth, stimulus packages, and business grants aids business growth
because of a resulting increase in consumer spending and business
investment.

Contracting Fiscal Policy
 Contracting fiscal policies are enacted by congress and the president to
increase government income while the economy is doing well and to
prevent an economic bubble by stabilizing the peak of a booming
economy. When taxes are increased, people have less money to spend
on consumer goods. When government spending is reduced, programs
and jobs are cut. The unemployed will seek jobs from businesses. Sales
will decline because of unemployment and higher taxes on consumers.
Corporations will also experience less government sales for military
equipment and other government goods.