ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Political Pressure
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Potential Recession
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No discretionary spending available
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The infrastructure of the country may suffer.
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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. This increases consumption as there is a rise in purchasing power.
Detailed explanation-2: -All of this activity is meant to stimulate an economy. Unfortunately, in order to reduce unemployment, the primary negative effect of expansionary policy is inflation. An increase in the money supply can lead to inflation if it outpaces the growth of the economy.
Detailed explanation-3: -Expansionary fiscal policy tends to be very controversial because reducing tax rates and increasing spending will likely have adverse effect on the government’s budget. That is, the deficit and national debt could grow. On the other hand, if spending is growing faster than expected, another issue can arise-inflation.
Detailed explanation-4: -Fiscal policy that increases aggregate demand directly through an increase in government spending is typically called expansionary or “loose.”