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Examine two reasons why a government might wish to control increases in its expenditure
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Examine two reasons why a government might wish to control increases in its expenditure Increases in government expenditure will shift the Aggregate Demand (the sum of all demand within an economy) outwards. This is called an expansionary fiscal policy (fiscal meaning relating to government spending), and may be implemented to stimulate an economy if it is in recession. Another type of fiscal policy is called contractionary fiscal policy, and is used to help control demand pull inflation. Demand-pull inflation is the increases in prices at a relatively higher rate than increases in income. This occurs when demand is greater than supply. A government may wish to control increases in its expenditure for a number of reasons, including controlling the extent of government intervention, letting market forces act and to prevent crowding out. The two reasons that I will examine are to keep the tax levels down and to control inflation. Taxes are...
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