Expansionary Fiscal Policy

Expansionary fiscal policy refers to government-initiated measures aimed at accelerating economic growth and enhancing aggregate demand within an economy. This policy approach generally involves increasing public expenditure, reducing taxes, or introducing targeted fiscal incentives to stimulate investment, production, and consumption. It is commonly implemented during periods of economic slowdown or recession to counteract declining demand and promote recovery.

Example: During a recession, a government may adopt an expansionary fiscal policy by cutting income taxes and increasing infrastructure spending to create jobs and boost consumer spending.