Which fiscal policy tool can be used to stimulate economic growth?
Practice Questions
Q1
Which fiscal policy tool can be used to stimulate economic growth?
Increasing taxes
Decreasing government spending
Increasing government spending
Reducing interest rates
Questions & Step-by-Step Solutions
Which fiscal policy tool can be used to stimulate economic growth?
Step 1: Understand what fiscal policy is. Fiscal policy refers to the government's use of spending and taxation to influence the economy.
Step 2: Identify the tools of fiscal policy. The main tools are government spending and taxation.
Step 3: Learn how government spending can stimulate the economy. When the government spends money, it creates jobs and increases demand for goods and services.
Step 4: Recognize that increased demand can lead to economic growth. More demand means businesses may produce more, hire more workers, and invest in new projects.
Step 5: Conclude that increasing government spending is a fiscal policy tool that can effectively stimulate economic growth.
