Which is expansionary fiscal policy?

Question

BlackTom AI · Accepted Answer

Expansionary fiscal policy increases aggregate demand by raising government spending or cutting taxes. 1. Relevant knowledge points and concepts - Fiscal policy refers to government decisions on taxation (T) and government spending (G). - Expansionary fiscal policy is intended to boost economic activity (increase aggregate demand, AD), typically through higher G and/or lower T. - Contractionary fiscal policy reduces AD, typically through lower G and/or higher T. 2. Complete reasoning process step by step - Examine each answer option and compare it to the definition of expansionary fiscal policy. - "Raising taxes": an increase in T reduces households’ disposable income, lowering consumption (C) and shifting AD left. That is contractionary. - "Lowering government spending": a reduction in G directly reduces one component of AD (AD = C + I + G + NX), so AD falls. That is contractionary. - "Both of these": since each individual policy is contractionary, their combination is also contractionary, not expansionary. - "Neither of these": if neither listed policy is expansionary, then this option is correct. 3. Calculational/intermediate logical steps - Effect of raising taxes: ΔT > 0 → Δ(disposable income) < 0 → ΔC < 0 → ΔAD < 0. - Effect of lowering G: ΔG < 0 → ΔAD < 0. - Since both give ΔAD < 0, neither option increases AD. 4. Why the correct answer is correct - Expansionary fiscal policy requires either ΔG > 0 or ΔT < 0. Neither "raising taxes" (ΔT > 0) nor "lowering government spending" (ΔG < 0) meets that requirement. Therefore, neither option is expansionary. 5. Why other options are incorrect - "Raising taxes": incorrect because it reduces disposable income and consumption (contractionary). - "Lowering government spending": incorrect because it directly reduces aggregate demand (contractionary). - "Both of these": incorrect because the combination still reduces AD rather than increases it. 6. Conclusion - The correct choice is "neither of these," which matches the provided answer.

Which is expansionary fiscal policy?单项选择题

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Which is contractionary fiscal policy?