CIMA BA1 · Chapter 2 · Question 2 of 10
Which of the following combinations represents an expansionary fiscal policy?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Reducing income tax rates and increasing government spending
Explanation
Fiscal policy uses taxation and government spending. Cutting taxes and raising spending increase aggregate demand, so the stance is expansionary. Interest rate changes and bond sales are monetary policy tools, and higher taxes with lower spending is contractionary.
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