What is expansionary fiscal policy and what effect does it have?

Expansionary fiscal policy involves increasing aggregate demand (AD) by increasing government spending and decreasing taxation. Lower taxes will increase consumer disposable income which increases their spending. Due to the increase in aggregate demand, inflation will rise. Expansionary fiscal policy also increases short run economic growth due to increases in real GDP. It also causes a fall in unemployment, redistribution of income from the rich to the poor and an increase in spending on imports relative to exports.

JW
Answered by Jessica W. Economics tutor

3213 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is supernormal profit?


Discuss the view that the measures taken to reduce the size of the budget deficit will inevitably result in a rise in unemployment in the UK.


How does the law of diminishing marginal utility affect the demand for a Veblen good?


What is market failure?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences