Which of the following events occur when fiscal expansion is used without accommodating monetary policy?
A)Total government spending increases (or net taxes decrease).
B)Total private induced spending increases.
C)Private induced spending decreases.
D)A and B are both correct.

Question

Quizplus · Accepted Answer

Fiscal expansion involves increasing government spending or decreasing taxes, which directly increases total government spending (A). This typically leads to an increase in aggregate demand, which can stimulate more private spending (B), as consumers and businesses respond to the improved economic conditions. However, without accommodating monetary policy (i.e., monetary policy that does not offset the fiscal expansion), interest rates may rise, potentially moderating the increase in private spending. Nonetheless, the initial effects are captured in options A and B.

Which of the Following Events Occur When Fiscal Expansion Is