Which of the following tools of fiscal policy are used to positively stimulate an economy?

Question

Multiple select question.

Increased government spending

Tax reductions

Decreased government spending

Tax increases

Answer 1

To positively stimulate an economy, the following tools of fiscal policy are typically used:

• Increased government spending - This can boost economic activity by creating jobs and encouraging demand for goods and services.

• Tax reductions - Lowering taxes increases disposable income for consumers and businesses, which can lead to increased spending and investment.

The options that would not be used to positively stimulate the economy are:

• Decreased government spending - This generally has a contractionary effect on the economy.

• Tax increases - Raising taxes typically reduces disposable income, which can lead to decreased consumer spending and economic slowdowns.

So, the correct answers are Increased government spending and Tax reductions.