Expansionary fiscal policy

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, which involves increased government spending and/or tax cuts, can stimulate aggregate demand and lead to economic growth in the short run by increasing consumer and business spending. However, there may be some crowding out effect in the short run, where increased government borrowing leads to higher interest rates and reduces private investment. But this is not significant enough to negate the effectiveness of expansionary fiscal policy in the short run.

Expansionary Fiscal Policy