Question

Does the money supply exogenously increase when Congress & The President agree to deploy stimulative fiscal policy?

Explain without using a diagram.

Answer 1

Yes the money supply exogenously increase when Congress & The President agree to deploy stimulative fiscal policy: because expansionary fiscal policy include increase in government spending and reduction in taxes. So when government increases its spending on public welfare or development projects such as infrastructure, social security, etc. it increases supply of money in the economy and when government reduces taxes or tax rates it increases money with people which further leads to more money in the economy. The expansionary fiscal policy by increasing money supply in the economy increases aggregate demand, consumption expenditure, investment and employment in the economy it increases money flow in the economy which leads to further money creation and rise in money supply in the economy.