Question : The government's policy of reducing taxes to stimulate economic growth is known as ____________.
Option 1: Austerity measures
Option 2: Expansionary fiscal policy
Option 3: Contractionary fiscal policy
Option 4: Supply-side economics
Correct Answer: Expansionary fiscal policy
Solution : The correct answer is (B) Expansionary fiscal policy.
Expansionary fiscal policy refers to the government's use of increased government spending and/or decreased taxation to stimulate economic growth and aggregate demand. By reducing taxes, the government puts more money into the hands of individuals and businesses, which can lead to increased consumer spending and investment. This, in turn, can boost economic activity and promote growth.
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