Expansionary fiscal policy involves
A)increasing government purchases or decreasing taxes.
B)increasing taxes or decreasing government purchases.
C)increasing the money supply and decreasing interest rates.
D)decreasing the money supply and increasing interest rates.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy involves increasing aggregate demand by either increasing government purchases or decreasing taxes. This increases disposable income and spending, leading to an increase in real GDP and lower unemployment. Increasing taxes or decreasing government purchases would reduce disposable income and spending, leading to a decrease in real GDP and higher unemployment. Increasing the money supply and decreasing interest rates are tools used in expansionary monetary policy, not fiscal policy. Decreasing the money supply and increasing interest rates are tools used in contractionary monetary policy.

Expansionary Fiscal Policy Involves