- Controlling Inflation (Contractionary Policy):
- Government reduces spending.
- Increases tax levels to suck money out of the economy.
- Reduces aggregate demand for goods and services.
- Lowers the inflation level.
- Stimulating Growth (Expansionary Policy):
- Government increases spending (e.g., infrastructure).
- Reduces tax levels (increases disposable income).
- Fuels aggregate demand.
- Creates jobs and wages, pumping money into the economy.
- Rekindles businesses and economic activity.