When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves increasing government spending and/or decreasing taxes in order to boost economic growth and stimulate demand. This would typically increase the budget deficit rather than reduce it. A contractionary fiscal policy would involve cutting government spending and/or raising taxes in order to reduce the budget deficit.

When a Government Engages in an Expansionary Fiscal Policy, It