Question

Economist C says all of the following: Expansionary fiscal policy is needed to raise aggregate demand and remove the economy from a recessionary gap. The choice of fiscal policy measures is between ________________ government spending and a _______________ in taxes. Since I am in favor of bigger government, I choose a(n) _________________ in _________________.

Answer 1

Answer:

The choice of fiscal policy measures is between ___increased_____________ government spending and a ____decrease___________ in taxes. Since I am in favor of bigger government, I choose a(n) ____increase_____________ in ____governmental spending_____________.

Explanation:

Government employ two fiscal measures to drive the economy toward stability.  They are taxation and government expenditure.  Depending on the desired outcome and the prevailing circumstances, an increase in taxation reduces the propensity to consume, thus fueling increased savings and investments.  Increased government expenditure galvanizes the economy to grow and the increased expenditure acts as a stimulus to economic activities.  But fiscal policy measures are not used in isolation.  They are complemented by monetary policies by the Federal Reserve.