ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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During periods of high inflation
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When the economy hits the peak of the business cycle
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During periods of high unemployment
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During an election
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Detailed explanation-1: -Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.
Detailed explanation-2: -Expansionary fiscal policy is used to prevent or end recessions, or to prevent high unemployment. The Economic Stimulus Act of 2008 allowed the government to put money directly into consumers’ pockets in the hope of stimulating spending.
Detailed explanation-3: -Expansionary Fiscal Policy: This type of fiscal policy is used when things get too slow, commonly during a recession, and the government wants to fuel growth. Government spending increases and tax rates drop. Unemployment falls as jobs open up and more people jump back into the workforce.
Detailed explanation-4: -The purpose of expansionary fiscal policy is to boost growth to a healthy economic level, which is needed during the contractionary phase of the business cycle. The government wants to reduce unemployment, increase consumer demand, and avoid a recession.
Detailed explanation-5: -Increasing spending and cutting taxes to produce budget deficits means that the government is putting more money into the economy than it is taking out. Expansionary fiscal policy includes tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements.