21.9k views
2 votes
An aftereffect of Expansionary Fiscal Policies is known as the:

User Burnsi
by
5.5k points

1 Answer

3 votes

Expansionary fiscal policy is, simply put, when a government starts spending more, or taxing less. In the U.S. today, expansionary fiscal policy is typically associated with an expanding deficit and national debt, but this policy doesn't necessarily equate to these two hot political topics. A government can have a budget surplus and still use this policy. The key is that it just spends more or taxes less, regardless of its budgetary surplus or deficit.

Governments pursue expansionary fiscal policies as a tool to stoke an economy into growth and to create jobs. The theory behind these decisions is based on the Keynesian Theory of economics, one of the more widely accepted and respected schools of thought today.

An expansionary fiscal policy is a powerful tool, but a country can't maintain it indefinitely. Eventually, its budget deficit will become too large, driving up its debt to an unsustainable level. Therefore, this policy is typically viewed as a short-term tool, not as a constant. That's why governments typically turn to expansionary policies during recessions and economic slowdowns rather than during times when the economy is doing well.

User Webspirit
by
5.4k points