Chapter 20, Problem 3MCQ

To determine

The correct option for Expansionary fiscal policy

Answer to Problem 3MCQ

From the available options, the correct option is increasing government spending.

Explanation of Solution

Expansionary fiscal policy refers to the increase in government spending on projects or schemes which improve the life of society or offer better infrastructure facilities such as tax cuts, rebates, etc.

Therefore, the correct option is increasing government spending because increase in tax, decrease in interest rate, increase in money supply do not come under the expansionary fiscal policy. Expansionary fiscal policy considers decrease in tax rates, interest rates and increase in transfer payments.

Here, the correct option is b (increasing government spending) and all other options are incorrect.

Economics Concept Introduction

Introduction: Fiscal policy is a policy through which government spending and tax policies are used to make the economic conditions better.