When implementing tax cuts to stimulate growth as part of fiscal policy, what type of policy is the government pursuing?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. Expansionary.
- When the government implements tax cuts to foster economic growth as a component of fiscal policy, it is pursuing expansionary policy.
- By reducing taxes, the government aims to increase disposable income for individuals and businesses, stimulating spending, investment, and overall economic activity.
- This strategy is employed during periods of economic slowdown or recession to boost aggregate demand and encourage expansion in the economy.