ACCA FM · Chapter 2 · Question 1 of 10
Which of the following would be an example of an expansionary fiscal policy?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Reducing the rate of income tax
Explanation
Fiscal policy concerns government taxation, spending and borrowing. Cutting income tax increases households' disposable income and so boosts aggregate demand, which is expansionary. Cutting government spending is contractionary fiscal policy, while changing interest rates or the money supply is monetary policy.
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