Discretionary expansionary fiscal policy may lead to all of the following, except _____

Question

Quizplus · Accepted Answer

Discretionary expansionary fiscal policy, which involves increasing government spending or decreasing taxes, typically leads to higher interest rates, not lower. This is because such policies can increase demand for funds, potentially leading to higher borrowing costs. Choices A, B, C, and E are all possible outcomes of expansionary fiscal policy: it can reduce national saving (as government borrowing increases), decrease unemployment (by stimulating demand), lead to inflation (if demand outstrips supply), and cause crowding out (where increased government borrowing leads to less investment in the private sector).

Discretionary Expansionary Fiscal Policy May Lead to All of the Following