Question

• Give and explanation of Expansionary fiscal policy

Answer 1

Answer : There exists two policies to maintain the economic system of a nation. These two policies are : Fiscal policy and Monetary policy.

When government increase the money supply in the economy then the expansionary fiscal policy occur. In case of expansionary fiscal policy the IS curve shift to rightward. Government increase money supply in the economy by cutting tax rate or by increasing spending. When government cut tax rate or increase spending then people get more money to spend. As a result, aggregate demand increase in the economy. The example of expansionary fiscal policy are : tax cut and increase government spending.