A(n) _____ policy is employed when the government chooses to run a larger deficit.

A(n) _____ policy is employed when the government chooses to run a larger deficit.

a. contractionary

b. proportional

c. monetary

d. expansionary

Answer: d. expansionary

An expansionary policy is used in a situation whereby the government opts to borrow more money or spend than what it receives. An expansionary fiscal policy is a situation whereby the government aims to increase spending or reduce taxes or both. This involves raising the flow of the circulating cash within the economy as one of the measures of raising overall spending.

This simply brings the understanding that a larger deficit lays a more significant amount of money into circulation leading to the increase in spending in the households, investment by the businesses and therefore the economy. This policy is usually done during a time when the economy is not performing so well such as during a recession in order to attempt to improve it. But it has to be done in moderation because, as research shows, high deficits imply even higher inflation rates and too many credits received over the years.