If the economy starts out with a balanced federal budget, a subsequent expansionary fiscal policy will create a Blank______.

Question

Multiple choice question.

lower tax rate

lower inflation rate

budget deficit

budget surplus

Answer 1

An expansionary fiscal policy typically involves increasing government spending or decreasing taxes to stimulate economic activity. If the federal budget starts out balanced and the government enacts expansionary fiscal policy, it is likely to result in increased spending without a corresponding increase in revenue, leading to:

budget deficit

So the correct answer is budget deficit.