Respuesta :
There are three kinds of policies that the government can use expansionary, contractionary or neutral.
The government in this case can use contractionary fiscal policies since inflation is present so the government has to increase taxes and reduce spending.
The use of government spending and tax policies to impact economic circumstances is referred to as fiscal policy. Fiscal policy is claimed that governments could regulate economic activity and stabilize the business cycle.
Contractionary fiscal policy is the tool that should be implemented by the government.
The reasons to implement contractionary fiscal policy tool:
- If the economy is facing inflation and unemployment rates aren't particularly high, the government should enact austerity measures, which, while increasing unemployment, will dramatically reduce inflation.
- Austerity, on the other hand, can be dangerous since it might have a detrimental influence on the economy by slashing spending in key areas.
- Contractionary fiscal policy must be implemented by the government.
- It means that fiscal policy must be used to reduce aggregate demand.
The tools mechanism:
- Inflation reduction is the purpose of contractionary fiscal policy. As a result, the tools would be a reduction in government spending and/or a tax rise.
- The contractionary fiscal policy keeps the unemployment rate from falling below optimal levels, keeping it at "full employment," which is when unemployment reaches its lowest point without causing inflation, according to economists.
Therefore, there is a stable drop in unemployment and inflation rates from 4.2% to 2.4% as a sign to use contractionary fiscal polity.
For more information about Fiscal Policy, refer to the link below:
https://brainly.com/question/19334696
