ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Summary. Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.

Detailed explanation-2: -During a recession, the government may lower tax rates or increase spending to encourage demand and spur economic activity. Conversely, to combat inflation, it may raise rates or cut spending to cool down the economy.

Detailed explanation-3: -Detailed Solution The correct answer is an Increase in government expenditure. Fiscal measures are used to get the economy out of recession when Increase in government expenditure.

Detailed explanation-4: -There are three types of fiscal policy. They are neutral policy, expansionary policy, and contractionary policy.

Detailed explanation-5: -Fiscal Policy When the country is in a recession, the appropriate policy is to increase spending, reduce taxes, or both. Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services.