Answer: an increase in public spending on social goods and infrastructure.

## Explanation **Correct Answer: B** - an increase in public spending on social goods and infrastructure. **Why B is correct:** 1. **Fiscal Policy Definition**: Fiscal policy refers to the use of government spending and taxation to influence the economy. Expansionary fiscal policy aims to stimulate economic growth by increasing aggregate demand. 2. **Expansionary Fiscal Policy Tools**: - **Increasing government spending** (Option B) - This directly injects money into the economy, creating jobs, increasing incomes, and boosting consumption. - **Decreasing taxes** - This puts more money in consumers' and businesses' hands, increasing disposable income and encouraging spending. **Why A is incorrect:** - A reduction in bank reserve requirements is a **monetary policy** tool, not fiscal policy. This is controlled by central banks to influence the money supply and credit availability. **Why C is incorrect:** - The purchase of government bonds through open market operations is also a **monetary policy** tool used by central banks to increase the money supply and lower interest rates. **Key Distinction**: - **Fiscal Policy**: Government spending and taxation decisions made by the legislative/executive branches. - **Monetary Policy**: Actions by central banks (like the Federal Reserve) to control money supply and interest rates. **Economic Impact of Expansionary Fiscal Policy**: - Increases aggregate demand - Stimulates economic growth - Reduces unemployment - May lead to higher inflation if the economy is near full capacity - Increases government budget deficits or reduces surpluses

Author: LeetQuiz .