An effective expansionary fiscal policy will:

Question

Quizplus · Accepted Answer

Expansionary fiscal policy involves increasing government spending and/or decreasing taxes in order to stimulate economic activity and increase aggregate demand. This will lead to an increase in the budget deficit, or the amount of money the government is spending beyond its income. This increase in the deficit will continue until the economy is at full-employment equilibrium, at which point the deficit will stabilize. Therefore, an effective expansionary fiscal policy will increase the full-employment deficit.

An Effective Expansionary Fiscal Policy Will