Question

In case of expansionary fiscal policy the economy experiences budget surplus. Discuss

Answer 1

This is false statement.

Expansionary fiscal policy suggest that there is rise in the expenditure level and taxes are declining.

Therefore, government expenditure tends to outpace the revenue of government.

Expenditure is larger than the revenue of government. So here the deficit of government would rise and surplus will fall.

The budget surplus will occur when the government goes with contractionary fiscal policy. Under the contractionary fiscal policy, there is fall in expenditure and rise in tax rates. Therefore expenditure falls and revenue rises.