Fiscal policy is MOST effective when:
A) interest rates are high.
B) bond prices are low.
C) the money supply is falling.
D) there are many unemployed resources.

Question

Quizplus · Accepted Answer

Fiscal policy involves government spending and taxation. It is most effective when there are many unemployed resources, such as labor and capital, as this means there is slack in the economy that can be picked up by government spending. This can lead to an increase in aggregate demand and can help stimulate economic growth. When interest rates are high, it may be more difficult to encourage investment and spending through fiscal policy, and if the money supply is falling, it may be harder to finance government spending. Bond prices are also not directly related to the effectiveness of fiscal policy.

Fiscal Policy Is MOST Effective When