📚 Learning Guide
Expansionary Fiscal and Monetary Policies
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How does expansionary fiscal policy contribute to economic growth?

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Learning Path
Learning Path

Question & Answer
1
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2
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3
Learn Explanation
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Choose the Best Answer

A

By increasing government spending and lowering taxes to boost demand

B

By reducing the money supply to control inflation

C

By increasing interest rates to encourage saving

D

By implementing austerity measures to stabilize the economy

Understanding the Answer

Let's break down why this is correct

Answer

Expansionary fiscal policy helps boost economic growth by increasing government spending or cutting taxes. When the government spends more money on things like roads, schools, or healthcare, it creates jobs and puts more money in people's hands. For example, if a city builds a new park, workers are hired to construct it, and these workers then have money to spend in local stores. This increase in spending can lead to more business activity, which encourages companies to hire more employees and invest in their growth. Overall, by putting more money into the economy, expansionary fiscal policy can help stimulate demand and support a stronger economy.

Detailed Explanation

This policy helps the economy grow by increasing government spending and lowering taxes. Other options are incorrect because Some might think reducing the money supply helps the economy; Increasing interest rates might seem like a good way to save money.

Key Concepts

Expansionary fiscal policy
Economic growth
Topic

Expansionary Fiscal and Monetary Policies

Difficulty

medium level question

Cognitive Level

understand

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