An expansionary Fiscal policy stance by government / authority will reflect in __:
1. Increased Money Supply
2. Increased Government spending
3. Increased Taxation
Choose the correct option from the codes given below:
There are three types of the Fiscal Policies.
Neutral Fiscal Policy
A neutral fiscal policy means that total government spending is fully funded by the tax revenue. The government takes a neutral fiscal policy stance when the economy is in a state of equilibrium.
Expansionary Fiscal Policy
An expansionary fiscal policy means that the government spending is more than tax revenue. Government needs to spend more than its revenue during the time of recessions. This is because recession occurs when there is a general slowdown in economic activity. Recessions generally occur when there is a widespread drop in overall spending. Recessions may be triggered by various events, such as
•External trade shock,
•Adverse supply shock
•Bursting of an economic bubble.
Governments usually respond to recessions by adopting expansionary fiscal policies, such as increasing money supply, increasing government spending and decreasing taxation. When the tax is decreased, there is more money left with people, who can spend more.
Contractionary fiscal policy
Contractionary fiscal policy occurs when government spending is lower than tax revenue. When the tax revenue of the government is more, the excess money can be used to pay the government debt.
This question is a part of GKToday's Integrated IAS General Studies Module