ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary fiscal policy is usually characterized by deficit spending. Deficit spending occurs when government expenditures exceed receipts from taxes and other sources. In practice, deficit spending tends to result from a combination of tax cuts and higher spending.

Detailed explanation-2: -Expansionary fiscal policy is defined as an increase in government expenditures and/or a decrease in taxes that causes the government’s budget deficit to increase or its budget surplus to decrease.

Detailed explanation-3: -Expansionary fiscal policy includes tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements. For example, it can increase discretionary government spending, infusing the economy with more money through government contracts.

Detailed explanation-4: -Some of the key objectives of fiscal policy are economic stability, price stability, full employment, optimum allocation of resources, accelerating the rate of economic development, encouraging investment, and capital formation and growth.

Detailed explanation-5: -The correct answer is: C). Interest rates will remain relatively constant. Expansion monetary policy targets increase in money supply putting downward pressure on interest rates. On the other hand, expansionary fiscal policy pushes interest rates up and this will make interest rates remain relatively constant.