ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary fiscal policy is when the government increases the money supply in the economy using budgetary instruments to either raise spending or cut taxes-both having more money to invest for customers and companies.

Detailed explanation-2: -Taxes influence the allocation to the extent that the interest returns are taxable and the costs are not deductible. ‘However, consumption and, hence, money demand will be increased to the extent that lower business taxes lead to a rise in dividends and/or are shifted into higher wages or lower prices.

Detailed explanation-3: -This is exactly how tax cuts work in a neoclassical growth model. Lower tax rates increase the demand for assets as well as the supply of labor. The economy responds with lower interest rates, higher employment, higher investment and faster economic growth.

Detailed explanation-4: -When the taxes of any individual decrease, his consumption increases, and due to this the aggregate demand curve shifts right. But when the taxes of an individual increase, his consumption decrease as well as the aggregate demand curve shifts to left.

Detailed explanation-5: -Central banks affect the quantity of money in circulation by buying or selling government securities through the process known as open market operations (OMO). When a central bank is looking to increase the quantity of money in circulation, it purchases government securities from commercial banks and institutions.