Which of the following is an example of expansionary fiscal policy quizlet?
Which of the following is an example of an expansionary fiscal policy? A decrease in taxes.
Terms in this set (22) Which of the following is an expansionary fiscal policy? Expansionary fiscal policy is aimed at stimulating the economy toward expansion. This can be achieved by increasing government spending or by cutting taxes, which has the effect of increasing aggregate demand.
Answer and Explanation: Expansionary fiscal policy is: c. Both an increase in government spending and a decrease in taxes.
Answer and Explanation: The correct answer is C) A decrease in taxes. This option is correct because a tax decrease is an example of an expansionary fiscal policy. As taxes decrease, the IS curve shifts rightward, which increases the aggregate demand curve.
Answer and Explanation: The correct answer is b) Increasing the interest rate target.
Answer and Explanation: The correct option is d. It will increase budget deficits and the national debt. An expansionary fiscal policy is implemented using a deficit budget.
Unemployment insurance is an example of an expansionary automatic stabilizer, while progressive income tax and corporate income tax are examples of contractionary automatic stabilizers.
The Federal Reserve has three expansionary monetary policy methods: lowering interest rates, decreasing banks' reserve requirements, and buying government securities.
Definition and Examples of Fiscal Policy
For example, governments can lower taxes and raise spending to boost the economy if needed; typically, they spend on infrastructure projects that create jobs and income and social programs. Or, if the economy is doing well, a government can reduce spending and increase taxes.
Expansionary Fiscal Policy involves increasing government spending or decreasing taxes, which leads to an increase in aggregate demand.
What is the purpose of expansionary fiscal policy quizlet?
The purpose of expansionary fiscal policy is to increase aggregated demand either by having the government directly increase its own purchases or by cutting taxes to increase households disposable income, and therefore consumer spending.
What is expansionary policy used for? To stimulate growth in the economy.
Expansionary Monetary Policy
Also known as loose monetary policy, expansionary policy increases the supply of money and credit to generate economic growth. A central bank may deploy an expansionist monetary policy to reduce unemployment and boost growth during hard economic times.
Answer and Explanation: The correct options are (a) A decrease in the reserve ratio and (b) FOMC directive to purchase securities. A decrease in the reserve ratio means that commercial banks have to keep lesser money as a reserve with the central bank. This means that they can lend more.
Expansionary fiscal policy can undermine both effects, while contractionary fiscal policy can reinforce them. Specifically, spending increases and tax cuts work to boost demand in the near term, while high levels of projected deficits and debt can boost inflation expectations.
Central banks have four main monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on reserves.
The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements.
The Federal Reserve uses three main contractionary monetary tools: increasing interest rates, increasing banks' reserve requirement, and selling government securities.
Answer and Explanation: The Answer is D. Private Investment. Private Investment is not a fiscal policy tool.
The correct answer is Interest Rate. Interest Rate does not form part of the fiscal policy of a country. Fiscal policy is the use of government revenue collection (mainly taxes but also non-tax revenues such as divestment, loans) and expenditure (spending) to influence the economy.
What is the meaning of fiscal expansion?
Fiscal expansion is generally defined as an increase in economic spending owing to actions taken by the government. This expansion of spending in the economy may be intended, or may be a side effect of a government policy. Government spending is limited by its budget and available funds.
When the government takes an expansionary fiscal approach, this increases interest rates because the government has to sell bonds to raise the money it wants to spend; in turn, this attracts foreign capital and the demand for dollars, and ultimately increases the exchange rate.
Understanding Monetary Policy and Aggregate Demand
Expansionary monetary policy involves a central bank buying Treasury notes, decreasing interest rates on loans to banks, or reducing the reserve requirement. All of these actions increase the money supply and lead to lower interest rates.
The expansionary fiscal policy raises the domestic interest rate, thus causing a sudden appreciation in the exchange rate. The domestic interest rate is now above the world rate; the interest rate parity condition then implies that the market, at Z, expects the exchange rate to depreciate.
Fiscal stimulus is an important tool that policymakers can use to reduce the severity of recessions. The federal government provides fiscal stimulus when it increases spending, cuts taxes, or both, to shore up households' and businesses' demand for goods and services during a recession.
An example of an automatic stabilizer is unemployment benefits. During recessions the economy experiences insufficient aggregate demand, the unemployment benefits help to increase aggregate demand.
What is an example of expansionary monetary policy? Buying bonds.
Examples of fiscal stimulus involve increasing public-sector employment, investing in new infrastructure, and providing government subsidies to industries and individuals.
Fiscal policy involves changes in taxes or spending (government budget) to achieve economic goals. Changing the corporate tax rate would be an example of fiscal policy.
Answer and Explanation: Option (d) a decrease in taxes and an increase in government spending is correct.
Which one of the following is an example of expansionary monetary policy an increase in?
Buying bonds is a tool of expansionary monetary policy because buying bonds will lead to an increase in output. Buying bonds increases the money supply to decrease interest rates.
Expansionary Monetary Policy (Quantitative Easing) involves an increase in the money supply in order to lower interest rates and increase Consumption and Investment. It is used to counter a recession.
However, expansionary fiscal policy can result in rising interest rates, growing trade deficits, and accelerating inflation, particularly if applied during healthy economic expansions.