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What is the effect of expansionary fiscal policy?

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Question: What is the effect of expansionary fiscal policy?

Options:

  1. Decrease in aggregate demand
  2. Increase in aggregate demand
  3. No effect on the economy
  4. Increase in interest rates

Correct Answer: Increase in aggregate demand

Solution: 

Expansionary fiscal policy aims to increase aggregate demand through increased government spending or tax cuts.

What is the effect of expansionary fiscal policy?

Practice Questions

Q1
What is the effect of expansionary fiscal policy?
  1. Decrease in aggregate demand
  2. Increase in aggregate demand
  3. No effect on the economy
  4. Increase in interest rates

Questions & Step-by-Step Solutions

What is the effect of expansionary fiscal policy?
  • Step 1: Understand what expansionary fiscal policy is. It means the government is trying to boost the economy.
  • Step 2: Know that the government can do this by spending more money or by cutting taxes.
  • Step 3: When the government spends more, it creates jobs and increases demand for goods and services.
  • Step 4: When taxes are cut, people have more money to spend, which also increases demand.
  • Step 5: Increased demand can lead to higher production and more jobs, helping the economy grow.
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