Fiscal Policy Quick Check

Question

3 of 53 of 5 Items
Question
What impact does an expansionary fiscal policy action, such as a tax cut, generally have on consumer and business spending?(1 point)
Responses

spending decreases for both businesses and consumers
spending decreases for both businesses and consumers

spending increases for businesses and decreases for consumers
spending increases for businesses and decreases for consumers

spending decreases for businesses and increases for consumers
spending decreases for businesses and increases for consumers

spending increases for both businesses and consumers

Answer 1

The correct response is:

spending increases for both businesses and consumers.

Expansionary fiscal policy actions, such as tax cuts, typically lead to increased disposable income for consumers, which encourages consumer spending. Similarly, businesses benefit from reduced tax burdens, which can lead to increased investment and spending on growth initiatives.