Question

Which combination correctly describes expansionary fiscal policy during deficient demand?

Options

• Increase taxes, reduce spending, avoid borrowing

• Reduce taxes, reduce government spending, avoid deficit financing

• Reduce taxes, increase government spending, use deficit financing

• Increase taxes, increase government spending, reduce deficit

Answer 1

Reduce taxes, increase government spending, use deficit financing

Explanation: 

During deficient demand, expansionary fiscal policy reduces taxes and increases government spending to raise aggregate demand.
Deficit financing (borrowing/creating money) is also used to support higher spending.