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CSEET · Economic and Business Environment · Indian Union Budget

When the government deliberately increases its spending or cuts taxes during an economic slowdown to raise aggregate demand, the policy is called:

This is expansionary fiscal policy. The government uses its own budget tools, higher spending or lower taxes, to raise aggregate demand during a slowdown. Monetary policy is the RBI's control of interest rates and money supply, and contractionary policy would instead reduce demand.

  1. AExpansionary fiscal policyCorrect
  2. BContractionary monetary policy
  3. CExpansionary monetary policy
  4. DContractionary fiscal policy

Explanation

Fiscal policy concerns government spending and taxation. Raising spending or cutting taxes to boost demand is expansionary. Monetary policy is run by the RBI through rates and money supply, so those options do not fit, and contractionary policy would reduce demand.

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