Government spending is a more effective policy tool when:
A) the economy is above the LRAS curve.
B) the government raises taxes to finance spending.
C) consumers are pessimistic and not spending.
D) interest rates in the economy are rising simultaneously.

Question

Quizplus · Accepted Answer

Government spending is more effective when consumers are not spending, as it can stimulate demand and lead to economic growth. When the economy is already operating above the LRAS curve, there may be inflationary pressures and government spending may exacerbate the issue. Raising taxes to finance spending may also have negative effects on consumer spending and business investment. Rising interest rates may also limit the effectiveness of government spending, as borrowing costs for businesses and consumers increase.

Government Spending Is a More Effective Policy Tool When