Question

How will cuts in state budget spending affect federal expansionary policy?

Short answer

Cuts in state budget spending will partially offset the increase in federal spending.

Step-by-step solution

Concept of fiscal policy.

Fiscal policy is the process through which the government monitors its tax rate and makes adjustments in expenditure levels for the benefit of the nation and the impact of one's economy. As an instance of fiscal policy, we may point to tax cuts and increased government expenditure on welfare.

Step 2. Explanation of solution.

When the expansionary strategy is adopted, government expenditure can be expanded by increasing federal government spending on goods and services or by providing additional grants to state and local governments. All forms of government are intertwined in their operations. During a recession, state and municipal government budgets may be severely impacted, forcing them to cut back on spending. The state and municipal governments' lower spending may somewhat counterbalance the federal government's increased spending.