When the economy is in a recession, the government can use expansionary fiscal policy to stimulate and encourage economic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply perspective and a demand perspective? Choose one or more:

A. The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes.

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 payments of unemployment benefits.

D. The government lowers tax rates and begins a military buildup.

Question

Business

Broderick Russo

17 May, 09:25

When the economy is in a recession, the government can use expansionary fiscal policy to stimulate and encourage economic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply perspective and a demand perspective? Choose one or more:

A. The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes.

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 payments of unemployment benefits.

D. The government lowers tax rates and begins a military buildup.

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Answers (1)

Know the Answer?

Frances Benjamin · Answer 1

The correct answer is option B.

Explanation:

Fiscal policy is concerned with government spending and tax revenue. An expansionary fiscal policy involves either increasing spending or reducing taxes or both.

An increase in the money supply is an expansionary monetary policy.

Reducing the tax rates will reduce the cost of production for the sellers. This will increase the production of goods and services.

At the same time, a partial refund of taxes paid will increase the disposable income of the consumers. This will cause consumption spending and demand to increase.