Contractionary fiscal policy is a macroeconomic policy that involves decreasing government spending or increasing taxes in order to reduce the size of the budget deficit. This type of policy is used to slow down economic growth and reduce inflation. An example of contractionary fiscal policy is a tax increase, which reduces the amount of money citizens have to spend and slows down the rate of economic growth.
Expansionary fiscal policy is a macroeconomic policy that involves increasing government spending or decreasing taxes in order to stimulate economic growth. This type of policy is used to increase aggregate demand and boost levels of investment. An example of expansionary fiscal policy is a tax cut, which increases the amount of money citizens have to spend, leading to increased consumer spending and economic growth.