... internal or external; they are expenditure - changing policies and expenditure - switching policies. Expenditure - changing policies revolve around fiscal and monetary policies. Fiscal policy refers to changes in government spending and or taxes. There are two types of fiscal policy expansionary and contractionary. Expansionary fiscal policy occurs when government spending is increased and /or taxes are reduced. The effect of this is an expansion of domestic production and income based on a multiplier process. An expansionary fiscal policy also induces an increase in imports; the extent of this increase is largely dependent on the nations marginal propensity to import. Contractionary fiscal policy is a product of reduced government spending and/or an increase in taxes, reducing both domestic production and income while inducing a fall in imports. Monetary policy revolves around a nations money supply that affects domestic interest rates. In the same way that there are two types of fiscal ...

See this essay or coursework document in full right now