What is a primary effect of expansionary fiscal policy?

The primary effect of expansionary fiscal policy is to stimulate economic activity, which typically leads to higher employment rates. This type of policy involves increased government spending and/or tax cuts, which injects more money into the economy. As the government invests in various projects or reduces taxes, consumers have more disposable income to spend, and businesses are encouraged to expand and hire more workers. As demand for goods and services rises, businesses often respond by increasing their workforce to meet this demand, thereby reducing unemployment and enhancing overall economic growth.

While it might seem counterintuitive, higher employment rates can result from the intentions behind expansionary fiscal policy, which is to boost a sluggish economy. As more individuals gain jobs and income, the potential for further spending and investment in the economy increases, leading to a beneficial cycle of growth.