Which of the following represents the most expansionary ﬁscal policy?
A) a $10 billion tax cut
B) a $10 billion increase in government spending
C) a $10 billion tax increase
D) a $10 billion decrease in government spending

Question

Quizplus · Accepted Answer

An increase in government spending is the most expansionary fiscal policy because it directly injects money into the economy, increasing aggregate demand and potentially stimulating economic growth. A tax cut may also stimulate demand, but it is not as direct as an increase in government spending. A tax increase or decrease in government spending are contractionary policies as they would decrease demand in the economy.

Which of the Following Represents the Most Expansionary ﬁScal Policy