Which of the following is true for an expansionary fiscal policy?
A)It leads to a fall in the interest rate.
B)It has no impact on the aggregate output.
C)It causes an increase in the aggregate demand.
D)It increases the level of imports.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves an increase in government spending and/or a decrease in taxes, which leads to an increase in disposable income and consumption. This increase in consumption contributes to an increase in aggregate demand, leading to higher output and employment levels. The increase in demand can also lead to a slight increase in interest rates, but the overall effect is an increase in output and lower unemployment rates. It may increase imports if the domestic production is not sufficient to meet the increased demand.

Which of the Following Is True for an Expansionary Fiscal