Praxis II Citizenship

Answer: B - An expansionary fiscal policy is enacted to increase aggregate demand and output or, in simpler terms, to encourage consumers to spend money. The goal is to encourage economic growth or slow inflation. For example, if the U.S. government were enacting an expansionary fiscal policy, they would most likely cut taxes and/or increase government spending. Cutting taxes would allow taxpayers to keep more of their own income, which they could spend (thereby creating greater demand for goods). The government would increase its spending by hiring more public sector workers or undertaking public works projects (such as building bridges, highways, tunnels, etc.), which would translate into pay for laborers and sales for companies that supplied the goods necessary for the projects.