Expansionary fiscal policy to fight recession is:
Expansionary fiscal policy to fight recession is characterized by increased government spending and reduced taxes.
Expansionary fiscal policy aims to stimulate economic activity during a recession by increasing government expenditure and lowering taxes to boost consumer spending and investment. This approach helps to increase aggregate demand and can lead to economic recovery.
This choice suggests that taxes are increased while spending is decreased, which is contrary to the principles of expansionary fiscal policy. Higher taxes and lower government spending would likely contract economic activity rather than stimulate it, making this option incorrect.
This option correctly identifies that expansionary fiscal policy involves reducing taxes while simultaneously increasing government spending. By lowering taxes, disposable income for consumers rises, encouraging spending, while increased government spending injects additional funds into the economy, stimulating growth.
This choice indicates an increase in taxes and a decrease in spending, which contradicts the essence of expansionary fiscal policy. Raising taxes reduces disposable income and can inhibit consumer spending, making it an ineffective strategy for combating recession.
This option incorrectly implies that spending is reduced while taxes are decreased. While lowering taxes is a correct aspect of expansionary policy, reducing spending would negate the intended effect of stimulating the economy, making this choice incorrect.
Expansionary fiscal policy during a recession relies on the combination of increased government spending and reduction in taxes to drive economic growth. The correct option highlights this dual approach, contrasting sharply with the incorrect choices that either propose tax increases or reductions in spending, which would not effectively address economic downturns. Understanding this policy mechanism is critical for effective economic management.
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