Question

How do the instances when expansionary fiscal policy should be used compare with those for contractional fiscal policy?
A. Expansionary fiscal policy should be used to increase the unemployment rate and contractionary fiscal policy should be used when economic growth is too fast.
B. Expansionary fiscal policy should be used to combat high inflation and contractionary fiscal policy should be used to increase government revenue.
C. Expansionary fiscal policy should be used to increase government revenue and contractionary fiscal policy should be used to increase consumer spendings.
D. Expansionary fiscal policy should be used during recessions to help build the economy and contractionary fiscal policy should be used when there is high inflation

Answer 1

D

Expansionary fiscal policy (higher government spending and/or lower taxes) is used in recessions to stimulate growth and reduce unemployment. Contractionary fiscal policy (lower spending and/or higher taxes) is used to cool an overheating economy and reduce high inflation.