ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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decreasing taxes.
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decreasing spending.
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decreasing the money supply.
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decreasing the reserve requirement.
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Detailed explanation-1: -Summary. Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.
Detailed explanation-2: -Increasing government spending on infrastructure that further increases the private sector productivity can increase the aggregate supply.
Detailed explanation-3: -Which of the following would be considered a fiscal policy action? A tax cut is designed to stimulate spending during a recession. increasing government purchases or decreasing taxes.
Detailed explanation-4: -Answer and Explanation: The correct option is d. It will increase budget deficits and the national debt. An expansionary fiscal policy is implemented using a deficit budget.
Detailed explanation-5: -A contractionary fiscal policy means a rise in taxes and a decrease in government expenditure. This causes aggregate demand which means a fall in prices. The decreased demand also leads to a decrease in the real GDP.