ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Increased borrowing by large governments is considered to be a common cause of crowding out. The borrowing can force interest rates higher and dampen loan demand by those in the private sector.

Detailed explanation-2: -However, expansionary fiscal policy can result in rising interest rates, growing trade deficits, and accelerating inflation, particularly if applied during healthy economic expansions. These side effects from expansionary fiscal policy tend to partly offset its stimulative effects.

Detailed explanation-3: -Which of the following statements is true regarding expansionary fiscal policy? It leads to an increase in the supply of bonds by the Treasury.

Detailed explanation-4: -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.