Question : Expansionary fiscal policy involves:
Option 1: Decreasing government expenditure and increasing taxes
Option 2: Increasing government expenditure and increasing taxes
Option 3: Decreasing government expenditure and decreasing taxes
Option 4: Increasing government expenditure and decreasing taxes
Correct Answer: Increasing government expenditure and decreasing taxes
Solution : The correct answer is (d) increasing government expenditure and decreasing taxes.
Expansionary fiscal policy is used to stimulate economic growth and increase aggregate demand during times of recession or low economic activity. To implement expansionary fiscal policy, the government typically increases its spending on various goods, services, infrastructure projects, and programs. This increased government expenditure injects more money into the economy, creating demand for goods and services and stimulating economic activity.
In addition to increasing government expenditure, expansionary fiscal policy also involves decreasing taxes. Lowering taxes provides individuals and businesses with more disposable income, which encourages increased consumption and investment. This, in turn, further boosts aggregate demand and economic growth.
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