Answer on Macroeconomics Question for Alishia
Contractionary fiscal policy is a decrease in government spending and/or an increase in taxes designed to avoid or correct the inflationary problems associated with a business-cycle expansion. Either action causes a decrease or downward shift of the aggregate expenditures line. If the correct vertical shift is achieved, then the Keynesian model can achieve equilibrium at the $9 trillion full-employment level of aggregate production. Such a result would close the inflationary gap and reduce the rate of inflation.
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