ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increase the level of AD by encouraging imports to boost productivity
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pump spending into the economy to generate an increase in employment and output
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lower the level of economic debt and help the economy achieve external balance since debt is such a serious problem in the long run
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None of the above
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Detailed explanation-1: -Expansionary fiscal policy is intended to boost growth to a healthy economic level, which is required during the business cycle’s contractionary period. The government seeks to reduce unemployment, raise consumer demand, and stop the recession.
Detailed explanation-2: -The basic objective of expansionary policy is to boost aggregate demand to make up for shortfalls in private demand. It is based on the ideas of Keynesian economics, particularly the idea that the main cause of recessions is a deficiency in aggregate demand.
Detailed explanation-3: -Expansionary fiscal policy is said to be in action when the government increases the spending and lowers tax rates for boosting economic growth. This increases consumption as there is a rise in purchasing power.
Detailed explanation-4: -Expansionary fiscal policy tools include increasing government spending, decreasing taxes, or increasing government transfers. Doing any of these things will increase aggregate demand, leading to a higher output, higher employment, and a higher price level.
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.