EXPANSIONARY & CONTRACTIONARY FISCAL POLICY

Expansionary & Contractionary Fiscal Policy

Expansionary & Contractionary Fiscal Policy

To be credible, macro-economic theories have to be based upon assumptions that reflect contemporary conditions and also have to be capable of explaining recent historical episodes. Any model that purports to explain operation of fiscal policy in increasingly globalize economies therefore requires an approach which is explicitly founded upon open-economy linkages and which yields predictions that fit reality. This paper compares and contrasts expansionary and contractionary fiscal policy. It explores when use of each one of concepts would be appropriate.

According to McConnell (2004) fiscal policy is likely to ...