ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raise expenditure on education and healthcare
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Raise taxes and raise interest rates
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Reduce government spending and raise taxes
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Reduce taxes and reduce interest rates
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Detailed explanation-1: -An expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth.
Detailed explanation-2: -First, if the government increases its purchases but keeps taxes constant, it increases demand directly. Second, if the government cuts taxes or increases transfer payments, households’ disposable income rises, and they will spend more on consumption. This rise in consumption will in turn raise aggregate demand.
Detailed explanation-3: -Tightening the money supply discourages business expansion and consumer spending and negatively impacts exporters, which can reduce aggregate demand. Monetary policy involves tools employed by a monetary authority (like a central bank), such as changing interest rates or reserve requirements.
Detailed explanation-4: -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-5: -expansionary fiscal policy the use of fiscal policy to expand the economy by increasing aggregate demand, which leads to increased output, decreased unemployment, and a higher price level. Expansionary fiscal policy is used to fix recessions.