Final answer:
A hypothetical government budget that employs expansionary fiscal policy would involve tax cuts and increased public spending to stimulate economic growth during a recession, resulting in a larger budget deficit but aiming to boost aggregate demand and lower unemployment.
Step-by-step explanation:
To describe a hypothetical government budget employing an expansionary fiscal policy, imagine a scenario where a government is facing economic recession. To combat the downturn and stimulate the economy, the government decides to implement tax cuts and increase public spending. Tax cuts may be targeted towards businesses and individuals to spur consumption and investment, while increased government spending could be directed towards infrastructure projects, education, healthcare, and defense.
Due to the tax cuts and increased expenditure, more money is added to the economy, which is intended to contribute to economic growth and job creation. However, this approach leads to an increase in the budget deficit, as the government is spending more than it collects in revenue. Nonetheless, the aim of these measures is to shift the aggregate demand curve to the right, increasing overall economic activity and potentially reducing unemployment.
An example of such policy was seen during the Great Recession, where both tax cuts and government spending were deployed to revive the economy. Moreover, politicians often show reluctance to impose contractionary measures, such as tax increases or spending cuts, during periods of economic growth, even when recommended by economic forecasters to prevent overheating the economy.