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

3284 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What effects aggregate demand and how would it effect the price level of the economy?


Explain the effect on economic growth if a government increases income tax (ceteris paribus).


How do I provide a good evaluation point for something I agree with?


What is the Price Elasticity of Demand?


We're here to help

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

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning