What is a contraction fiscal policy?

Fiscal policy concerns the ability of the government to use expenditure and choice of income to influence the overall economy. The contraction fiscal policy allows the government to reduce the economic growth by limiting the amount of government expenditure. Most nations monitor the growth of their economy through measurement of gross domestic product (GDP). One part of GDP is government expenditure. During a period of slow demand or lower supply, contraction fiscal policy does not choose large budget deficits due to the collection of lower tax revenues. The government and its agencies must buy goods or services from the private sector. The government must set aside or appropriate funds to obtain items needed to operate the government. This fiscal policy involves the use of funds and budgets of hope will lead to a balanced budget. When revenue begins to decline, an intelligent or effective government will develop a contraction fiscal policy to reduce irrelevant expenses. The purpose of this is to prevent the deficit from starting and having to goČIT money to pay for purchases. Money lending - usually through issuing government bonds to investors - will lead to interest for investors. This increases expenditure for the government and the need to tax more to citizens to pay off the debt.

Some governments may decide to raise taxes during the contraction fiscal policy. Higher tax revenues will help keep the government in operation without reducing the costs of politics or other needs. The problem with increasing taxes in the contraction fiscal policy is that the country's citizens may not be able to pay any additional money from their income. Above -axles will tend to slow the growth of individual income. Individuals often avoid situations where they could increase their income to prevent higher taxes associated with current fiscal policy in the nation.

Another factor of contraction fiscal policy is to reduce transfer payment. Government paymentsDU includes unemployment insurance, housing subsidies or payments for elderly. These reductions are often the least popular options in the contraction period. However, payments in the area of ​​transfer to the Government do not actually provide any advantage, which is a reason for limiting these payments to individual citizens. Governments can simply suspend payments plan for these items until the government enters the growth period to compensate for payments.