In economics, how come expansionary fiscal policy will create a budget deficit?

Answer 1

Expansionary Fiscal Policy is: Policy enacted by the government that increases output. Examples include lowering taxes and increasing government spending.

If the government does either, then fiscal policy will create more spending than income and thus a deficit.

The key idea of expansionary fiscal policy is that the government injects cash into the economy by either spending it, or giving back in tax breaks. This then stimulates the economy to grow.

Doing this requires a bit of discipline though. Because you run a deficit during this period, you must cut spending or increase taxes to make up that money later. If you don't you get a large and growing debt... sound familiar? That's what we have now in the US

Answer 2

Expansionary fiscal policy involves some combination of the following:

-Lower Taxes
-Increase Spending

If the budget is currently balanced, lowering taxes decreases revenues and causes a deficit.
Increasing spending causes higher expenditures and thus a deficit.

Answer 3

Expansionary fiscal policy = government spends more money. If taxes do not keep up with the added expenditure, there would be a budget deficit.

Answer 4

As already explained, to have an expansionary fiscal policy
lower taxes or increase spending.

But... if the government is running a surplus, you can do either or both and still run a balanced budget. But you have to it carefully.


Peace

Answer 5

Expansionary fiscal policy is a policy that tries to expand production, for instances by lowering taxes and increasing government spending.

So, at least in short term, it creates a deficit. In the long term the economy might expand and bring in more taxes.

Answer 6

cos there is no answer to economics never has been and never will be change your subject I did its worth it.