ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -During expansionary periods, governments can increase spending on infrastructure projects, social programs, and other initiatives to boost demand and stimulate economic growth. They may also enact tax cuts to reduce taxes, which puts more money in consumers’ pockets and stimulates spending.

Detailed explanation-3: -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.

Detailed explanation-4: -If the government uses expansionary policy and reduces tax rates and increases its spending on goods and services, it will likely result in extra income and spending in the economy. Expansionary fiscal policy is controversial, however, because it is likely to increase the level of government debt.