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Economics glossary · Policy and the financial sector

Expansionary fiscal policy

What expansionary fiscal policy means in economics, as one of the two directions of fiscal policy, with an example and a question to test yourself.

Definition
Expansionary fiscal policy
Expansionary fiscal policy increases aggregate demand through higher government spending or lower tax rates, and suits a recession with output below potential GDP.
Example

Can you think of an example of expansionary fiscal policy?

Test yourself

Can you name the two directions fiscal policy can take?

Learn it properly: the module

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