An expansionary fiscal policy
I. includes an increase in government spending.
II. includes tax cuts.
III. increases a government budget deficit or reduces a government budget surplus.

Question

An expansionary fiscal policy 
I. includes an increase in government spending.
II. includes tax cuts.
III. increases a government budget deficit or reduces a government budget surplus.

Quizplus · Accepted Answer

An expansionary fiscal policy is designed to stimulate economic activity and increase aggregate demand. This is achieved through a combination of government spending increases and tax cuts, both of which are included in an expansionary fiscal policy. However, these policies also increase the government's budget deficit or reduce the budget surplus, as more money is being spent or less is being collected in taxes. Therefore, all three statements (I, II, and III) are true.

An Expansionary Fiscal Policy