Answer:
a. An increase in the money supply is not an example of fiscal policy.
b. A decrease in taxes is an expansionary fiscal policy.
c. A decrease in the unemployment rate is not an example of fiscal policy.
d. An increase in tax rates is a contractionary fiscal policy.
e. A decrease in government spending is a contractionary fiscal policy.
f. A decrease in the money supply is not an example of fiscal policy.
g. A decrease in transfer payments is a contractionary fiscal policy.
h. An increase in corporate bonds purchased is not an example of fiscal policy.
i. An increase in government spending is an expansionary fiscal policy.
Explanation:
Fiscal policy refers to changes in tax policy or government spending in pursuit of economic goals. Fiscal policy is expansionary if it leads to higher levels of spending and contractionary if it leads to reduced spending.
Two of the scenarios provide examples of expansionary fiscal policy. An increase in government spending and a decrease in taxes are both federal government mechanisms designed to increase aggregate demand. Expansionary fiscal policy is when the government expands the money supply using tools like increase spending or cut taxes.
Three of the scenarios provide examples of contractionary fiscal policy. A decrease in government spending, an increase in taxes, and a decrease in transfer payments are all federal government mechanisms designed to decrease aggregate demand. Contractionary fiscal policy is when the government reduces the money supply by decreasing spending or raising taxes.
Four scenarios do not exemplify fiscal policy, as they are not federal government mechanisms designed to expand or contract aggregate demand. Two of the scenarios concern changes in the money supply and so reflect monetary policy, conducted by the Federal Reserve. The other two scenarios depict phenomena that, taken on their own, are unrelated to fiscal policy. The unemployment rate could fall for various reasons and is not a part of fiscal policy. The volume of corporate bonds purchased could increase for a variety of reasons and is not a part of fiscal policy.
