ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increase taxes; decrease reserve requirement
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decrease taxes; decrease discount rate
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increase spending; increase interest on reserves
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decrease spending; sell bonds via open market operations
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Detailed explanation-1: -Both monetary and fiscal policies are used to regulate economic activity over time. They can be used to accelerate growth when an economy starts to slow or to moderate growth and activity when an economy starts to overheat. In addition, fiscal policy can be used to redistribute income and wealth.
Detailed explanation-2: -Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual.
Detailed explanation-3: -An expansionary fiscal policy and a contractionary monetary policy would cause the interest rate to rise, investment demand to decrease but would have an indeterminate effect on aggregate demand.
Detailed explanation-4: -When the government is exercising its powers by lowering taxes and increasing their expenditures, they are practicing expansionary fiscal policy.