When the economy is in a recession, the government can use expansionary fiscal policy to stimulate and encourage economic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply perspective and a demand perspective? g Choose one or more: A The government raises tax rates and cuts Medicare payments. B. The Federal Reserve increases the money supply and lowers the interest rate while the government simultaneously reduces future taxes. C. The government lowers tax rates and begins a military buildup. □ D. The government lowers tax rates and issues a partial refund of taxes that have already been paid.

In a recession, the economic activity is generally contracted. In order to overcome this scenario and ease the contraction, expansionary policies are employed.

Expansionary fiscal policy deals with increased government expenditure and lower tax rates. This serves as an increased injection into the economy while at the same time allowing people to have more disposable incomes that they can spend. This stimulates the economic activity.

B

Option B explores the lowering of taxes which is an expansionary fiscal policy however, it also expands on the monetary policy by increasing money supply and lowering cost of borrowing.

C

Option C again lowers taxes. The military buildup can be interpreted as a way of government expenditure on military, this should also help as an injection of money into the economy. (It works when governments are buying locally produced goods)

D

Option D again lowers taxes and offers rebates on taxes which is lieu to allow people to have more disposable income - thus it is an example of expansionary fiscal policy.

As is obvious from the above explanation, Option A is an example of contracting fiscal policy.