Question

If the government spends 20 billion on national defense, what fiscal policy is being implemented?

1) Expansionary fiscal policy
2) Contractionary fiscal policy
3) Neutral fiscal policy
4) Cannot be determined

Answer 1

The government's spending of 20 billion on national defense represents an example of Expansionary fiscal policy.

Step-by-step explanation:

The government's spending of 20 billion on national defense represents an example of Expansionary fiscal policy. Expansionary fiscal policy increases aggregate demand through increased government spending, in this case on defense. This type of policy is appropriate when an economy is in a recession and not producing at its potential GDP.