To say that fiscal policy is countercyclical means that
A)it is used only during a recession.
B)cyclical movements in the economy can be offset by fiscal policy.
C)it is not very effective as a policy tool.
D)government spending and real GDP are negatively correlated.
E)it is used only every other year.

Question

Quizplus · Accepted Answer

Countercyclical fiscal policy refers to the use of government spending and taxation policies to offset the cyclical movements of the economy. During an economic downturn, the government may increase spending and decrease taxes to stimulate economic activity, while during an economic boom, the government may decrease spending and increase taxes to cool down the economy and prevent inflation. By using countercyclical fiscal policy, the government can help stabilize the economy and reduce the severity of economic cycles.

To Say That Fiscal Policy Is Countercyclical Means That