BackExpansionary and Contractionary Fiscal Policy definitions
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1/15BackSkip to main contentBackFiscal Policy
Government strategy involving changes in spending or taxation to influence aggregate demand and overall economic activity. Aggregate Demand
Total demand for goods and services in an economy, including consumption, investment, government purchases, and net exports. Expansionary Fiscal Policy
Government action of increasing spending or reducing taxes to stimulate economic growth during a recession. Contractionary Fiscal Policy
Government approach of decreasing spending or raising taxes to slow economic activity and control inflation. Recession
Economic period marked by real GDP falling below potential output, often accompanied by cyclical unemployment. Inflation
General rise in price levels, often occurring when aggregate demand exceeds the economy's long-run potential. Long-Run Aggregate Supply
Level of output an economy can produce when all resources are fully employed, representing potential GDP. Short-Run Aggregate Supply
Total production of goods and services in the economy at current prices, before full adjustment to equilibrium. Potential GDP
Maximum sustainable output an economy can achieve without causing inflationary pressures. Government Spending
Expenditures by the public sector on goods and services, directly influencing aggregate demand. Taxes
Compulsory payments to the government, affecting disposable income and consumption levels. Disposable Income
Household income available for spending and saving after taxes have been deducted. Consumption
Spending by households on goods and services, a major component of aggregate demand. Overemployment
Situation where more people are working than is sustainable, often due to excessive economic activity and high wages. Price Level
Average of current prices across the entire spectrum of goods and services produced in the economy.
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