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Budget policy, also known as fiscal policy, involves government decisions on spending and taxation to steer the economy. Expansionary measures, such as tax cuts or increased spending, can stimulate growth during economic downturns. However, sustained deficits, like the projected $1.9 trillion deficit in the U.S. for 2025, can lead to increased debt and potentially hinder private investment, affecting long-term growth. Contractionary policy, which includes raising taxes or cutting spending, aims to control inflation but may slow economic growth.

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