The answer is a yes. It can be either an Expansionary FiscalPolicy or a Contractionary Fiscal Policy depending on the scenarios it willenable a country to have a stabilize healthy economy growth with the adjustmentof government spending and taxes. Expansionary Fiscal Policy – usually when economic of acountry is facing recession. During this period, there will be an increase in governmentspending such as education, healthcare, roads and so on.
At the same time, reducingtaxes such as corporate tax, personal income tax and good & services tax. Whenboth characteristic had been initiated, there will be more jobs creation forits citizen, foreign investor will invest more on our country, more touristwill come by to spend and there will be an increase in consumer spending powerdue to more disposable income therefore there will be a rightward shift of ADcurve when the components of CIG increase which also leads to the increase inreal GDP. In LRAS, there will be a decrease in inflation rate and a boost inreal GDP due to train workers from skill-futures programmes.Contractionary Fiscal Policy – usually when economic of a country isexperiencing a rapid growth.
During this period, there will be a decrease ingovernment spending and an increase in tax. With lesser grants and subsidies dueto government is spending less will leads to lower disposable incomes andforeign won’t be investing due to high tax implemented. This resulted insteadily slowing down the economic growth and easing the inflation rate tosafeguard them from high general price level for the consumers therefore therewill be a leftward shift of AD curve when the components of CIG decreases thusboth general price level and real GDP decreases. There are bound to have limitation of both ExpansionaryFiscal Policy and Contractionary Fiscal Policy such as time lag due to longerprocessing period before it actual endorsed or enforced.