Question

When the economy is in a recession, expansionary fiscal policy can be used to stimulate and encourage economic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply and demand perspective at the same time? When choosing the answer, please look if it meets three description, expansionary, fiscal policies, and involving both the supply side and the demand side. (There could be more than one answer).
A. The government lowers tax rates and undertakes a replacement of old bridges and roads.
B.The government lowers tax rates and issues a partial refund of taxes that have already been paid.
C. The government raises tax rates and reduces unemployment insurance payments.
D. The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes.

Answer 1

Answer:

A

Explanation:

Discretionary fiscal policies are deliberate steps taken by the government to stimulate the economy in order to cause the economy to move to full employment and price stability more quickly than it might otherwise.

Discretionary fiscal policies can either be expansionary or contractionary

Expansionary fiscal policy is when the government increases the money supply in the economy either by increasing spending or cutting taxes.

If taxes are cut, disposable income increases and demand increases. this is an example of demand side

On the other hand, if a replacement project is undertaken, the demand for labour increases. this is an example of supply side

Contractionary fiscal policies is when the government reduces the money supply in the economy either by reducing spending or increasing taxes