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Which of the following represents the most expansionary fiscal policy? Multiple Choice a $10 billion tax...

Which of the following represents the most expansionary fiscal policy?

Multiple Choice

  • a $10 billion tax cut

  • a $10 billion increase in government spending

  • a $10 billion tax increase

  • a $10 billion decrease in government spending

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Answer #1

ANswer

option 2

a $10 billion increase in government spending

Expansionary fiscal policy is to stimulate the economy and it decreases taxes or increases spending or both.

The tax has less effect than the spending because tax decreases by the marginal propensity to consume as the decrease in tax increases disposable income and that changes consumption but the increases in government spending directly changes consumption so the increase in government spending has more effect.

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