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

Answer:

Option (B) is correct.

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.