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An expansionary fiscal policy is represented by: a-An increase in taxes b-A decrease in government spending...

An expansionary fiscal policy is represented by:

a-An increase in taxes

b-A decrease in government spending

c-An increase in price level

d-A decrease in real output

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Answer #1

Answer -
Option (c) is correct.

Explanation :
Expansionary fiscal policy is adopted to increase the economic activities during recession period. It increases output, aggregate demand and employment in the econonomy. During expansionary phase, there is increase in government spending and reduction in taxes. As expansionary fiscal policy used in recession period, increase in government spending will help to increase production activities in the econonomy, unemployment reduces, level of income will rise. As Government also reduce taxes in this policy, disposable income of the people increases and their demand for goods and services will also increase. It results in increase in agreegate demand. Increase in demand as compared to supply will reflect in increase in price of goods and services.

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