economists who are in favor of smaller government tend to prefer when expansionary policy is needed to raise aggregate demand

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10-11-2022
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economists who are in favor of smaller government tend to prefer when expansionary policy is needed to raise aggregate demand

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kumarprabhat kumarprabhat · Answer 1 · 2022-11-16T07:39:52+01:00

Economists who are in favor of smaller government tend to prefer tax cuts, when expansionary fiscal policy is needed to raise aggregate demand.

Tax reductions and higher government spending are the two primary manifestations of an expansionary fiscal policy. Both of these measures aim to boost overall demand while adding to deficits or reducing budget surpluses. They are typically used in recessions to accelerate recovery or in times of recessionary panic to prevent it.

Fiscal policy is viewed by classical macroeconomics as an effective tactic the government can employ to balance out the natural decline in spending and economic activity that occurs during a recession. Consumers and corporations reduce spending and investments as business conditions deteriorate. This budgetary restriction worsens the state of the company's operations and starts a vicious cycle that can be challenging to break.

Learn more about Fiscal policy here:

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