Final answer:
MP Bud Smythe's call for increased government expenditures and tax cuts is an example of expansionary fiscal policy, rooted in Keynesian macroeconomic theory to stimulate the economy during a recession.
Step-by-step explanation:
The actions that Member of Parliament Bud Smythe is calling for—increasing government expenditures and cutting taxes to stimulate the economy—are examples of expansionary fiscal policy. This type of fiscal policy is commonly used in response to economic downturns, with the goal of increasing aggregate demand to help push the economy towards potential GDP and full employment. The idea is that by cutting taxes, individuals have more disposable income to spend, thereby increasing consumption and investment. Similarly, by increasing government spending on projects like infrastructure, the government can directly boost economic activity.
The use of such policies is rooted in Keynesian macroeconomic theory, which suggests that during a recession, expansionary fiscal policy can shift the aggregate demand curve to the right, moving the economy from a recessionary gap to a level of full employment and potential GDP. The effectiveness of this policy, however, is debated among economists, with some arguing that the time lags and political realities involved in implementing such policies can sometimes result in exacerbating economic cycles rather than smoothing them out.