What type of fiscal policy aims to stimulate a struggling economy by increasing spending and decreasing taxes?

Expansionary fiscal policy is designed to stimulate a struggling economy through increased government spending and reduced taxes. This approach is employed during periods of economic downturn or recession when a boost in demand is necessary to revitalize growth. By increasing government expenditures, more money enters the economy, which can lead to job creation, increased consumer spending, and overall economic activity. Simultaneously, reducing taxes leaves individuals and businesses with more disposable income, further encouraging spending and investment.

In contrast, contractionary fiscal policy focuses on reducing government spending and increasing taxes to slow down an overheating economy. Supply-side fiscal policy emphasizes policies that benefit production, like tax cuts for businesses to stimulate investment and growth, rather than broad-based stimulus. Austerity measures involve cutting government spending and often raising taxes to reduce budget deficits, which can further inhibit economic growth rather than spur it. Thus, the correct response captures the essence of using fiscal policy as a tool to enhance economic activity during downturns.