Question : Expansionary fiscal policy involves:
Option 1: Decreasing government spending and increasing taxes
Option 2: Increasing government spending and increasing taxes
Option 3: Decreasing government spending and decreasing taxes
Option 4: Increasing government spending and decreasing taxes
Correct Answer: Increasing government spending and decreasing taxes
Solution : The correct answer is (d) Increasing government spending and decreasing taxes
Expansionary fiscal policy refers to a set of measures undertaken by the government to stimulate economic growth and boost aggregate demand during periods of economic downturn or recession. The goal of expansionary fiscal policy is to increase spending, investment, and consumption in the economy.
To implement expansionary fiscal policy, the government typically increases its spending on public goods and services, such as infrastructure projects, education, healthcare, or defense. This increased government spending injects money into the economy, creating demand and stimulating economic activity.
By increasing government spending and decreasing taxes, expansionary fiscal policy aims to boost overall demand, increase employment, and support economic growth.
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