Question : The process of increasing government spending and/or decreasing taxes in order to stimulate economic growth is known as:
Option 1: Fiscal austerity
Option 2: Fiscal stimulus
Option 3: Fiscal responsibility
Option 4: Fiscal consolidation
Correct Answer: Fiscal stimulus
Solution : The correct answer is (b) Fiscal stimulus.
Fiscal stimulus refers to the process of increasing government spending and/or reducing taxes to boost economic growth and activity. It is a policy approach used by governments during times of economic downturns or recessions to stimulate demand, increase consumption, and encourage investment.
When the economy is facing a slowdown or recession, fiscal stimulus measures aim to increase aggregate demand by injecting more money into the economy.
The objective of fiscal stimulus is to create a positive multiplier effect, where increased government spending or tax cuts lead to higher consumer spending, increased business investment, and overall economic expansion. This approach aims to jumpstart the economy, reduce unemployment, and promote business confidence.
It is worth noting that fiscal stimulus is typically employed as a short-term measure during economic downturns. Once the economy recovers, governments may shift towards fiscal consolidation or fiscal responsibility to ensure long-term fiscal sustainability and manage the budget deficit.
