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Options
-
Government’s spending exceeds its income
Correct answer
- B
Government’s spending is lower than its income
- C
Government’s income and expenditure are the same
- D
None of the above
Why this is the answer
Expansionary fiscal policy is adopted to stimulate economic growth, particularly during periods of slowdown or recession. This involves increasing government spending, reducing taxes, or a combination of both, which boosts total demand in the economy. When government expenditure exceeds its revenue, it creates a fiscal deficit, signaling an expansionary approach. This contrasts with contractionary fiscal policy, where spending is less than income to control inflation.
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