Expansionary Fiscal Policy Increases Budget Deficits

Steps:

• Recall expansionary fiscal policy involves higher government spending or lower taxes to boost economy.
• Note budget deficit equals government spending minus revenue; expansionary actions widen it.
• Identify fiscal measures in options: spending or taxes, excluding monetary tools.
• Match option to policy type and deficit impact.

Why B is correct:

• Increased welfare spending raises government expenditure, widening deficit per formula (deficit = spending - revenue).

Why the others are wrong:

• A: Quantitative easing is monetary policy, not fiscal, so leaves deficit unchanged.
• C: Lower income tax cuts revenue, increasing deficit, not reducing it.
• D: Lower interest rates is monetary policy, irrelevant to fiscal deficit.

Final answer: B