ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
A government cuts income tax rates and increases spending on infrastructure in order to stimulate demand during a recession. Which type of policy is this?
This is expansionary fiscal policy. Fiscal policy uses taxation and government spending, and cutting taxes while raising spending boosts aggregate demand. It is not monetary policy, which works through interest rates and money supply, and it is chiefly demand-focused rather than purely supply-side.
- AExpansionary fiscal policyCorrect
- BContractionary monetary policy
- CSupply-side policy only
Explanation
Fiscal policy uses government spending and taxation. Cutting taxes and raising spending increases aggregate demand, so it is expansionary. Monetary policy works through interest rates and money supply, and the measures here are not aimed solely at supply.
Did you get it right without looking?
One question tells you little. A timed set on Macroeconomic factors shows your real accuracy, how long you take and where you lose marks.
More Macroeconomic factors questions
- Which of the following is a typical macroeconomic objective of a government?
- A central bank raises its base interest rate to reduce inflationary pressure. What is the most likely immediate effect on businesses?
- A country operates a floating exchange rate system. Its central bank is concerned that rising demand for its currency from foreign investors…
- A government wishes to reduce structural unemployment. Which policy is most directly aimed at this type of unemployment?
- Which of the following is a likely harmful consequence for a business operating in an economy experiencing sustained deflation?
- A country runs a large and persistent deficit on the current account of its balance of payments. Which of the following is the most likely c…