Chapter11: Fiscal Policy And The Federal Budget
Section: Chapter Questions
Problem 9QP
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Question
Differentiate between the following terms.
Expansionary fiscal policy and expansionary
Expert Solution
Step 1
Expansionary fiscal policy is the policy which focuses on increasing aggregate demand by increasing government expenditure or by tax cutting.
While the expansionary monetary policy focusses on increasing money supply and aggregate demand by momentary tools like reducing reserve requirements that banks are to keep, reducing discount rate ie the rate at which banks borrow from central banks and buying Government securities or bonds. These lead to increase in ability of banks to lend and increase the money supply and thereby aggregate demand.
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