How does an expansionary fiscal policy, characterized by increased budget deficits, generally influence investment in an economy?

Expansionary fiscal policy involves the government increasing its spending or cutting taxes to stimulate the economy, often leading to larger budget deficits. When the government spends more, it can create jobs and boost demand for goods and services, encouraging businesses to invest in new projects and expand their operations. For instance, if the government builds a new highway, construction companies may invest in new equipment and hire more workers to meet the increased demand. However, larger budget deficits can also lead to higher interest rates over time, which might discourage some private investment as borrowing becomes more expensive. Overall, while expansionary fiscal policy can initially boost investment, its long-term effects depend on how it impacts interest rates and overall economic stability.