ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Expansionary fiscal policy is said to be in action when the government increases the spending and lowers tax rates for boosting economic growth.

Detailed explanation-2: -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.

Detailed explanation-3: -The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down budget surpluses.

Detailed explanation-4: -Option A is the correct answer. It is done by increasing government spending or implementing tax cuts. An increase in government spending leads to an increase in total demand for goods and the GDP. So, the fiscal policy of a $40 billion increase in government expenses would be the most expansionary fiscal policy.

Detailed explanation-5: -Fiscal policy tools are used by governments to influence the economy. These primarily include changes to levels of taxation and government spending. To stimulate growth, taxes are lowered and spending is increased. This often involves borrowing by issuing government debt.