Question

Which of the following is an example of an expansionary fiscal​ policy?

A. A decrease in government spending.
B. A decrease in taxes.
C. An increase in investment spending.
D. An increase in the money supply.

Answer 1

An example of expansionary fiscal policy is a decrease in taxes, aimed at increasing aggregate demand to counteract a recession.

Step-by-step explanation:

An example of an expansionary fiscal policy is B. A decrease in taxes. This type of policy aims to increase aggregate demand and stimulate economic growth, particularly in times of recession. It does so by increasing consumers' disposable income, thereby boosting consumer spending and driving economic activity. On the other hand, A. A decrease in government spending, C. An increase in investment spending (which is usually induced by monetary policy or the private sector), and D. An increase in the money supply (an example of monetary policy), do not represent fiscal policies.

During a recession, expansionary fiscal policy would most likely involve either reducing tax rates to raise disposable income or increasing government expenditures to stimulate demand directly.

Answer 2

Option (B) is correct.

Step-by-step explanation:

Fiscal policy and monetary policy are the policies which can be used by the government of a nation and the central bank of a nation.

Fiscal policy will be used by the government to change the aggregate demand in the economy.

Expansionary fiscal policy includes:

(i) Decrease in taxes

(ii) Increase in government spending

Decrease in taxes will increase the disposable income of an individual, so this will lead to an increase in the aggregate demand in an economy.