Fiscal policy is more effective in affecting economic activity if:
A) many resources are unemployed.
B) there is a real shock instead of an aggregate demand shock.
C) the economy returns to its long-run potential growth rate almost immediately.
D) there is a long implementation lag.

Question

Quizplus · Accepted Answer

Fiscal policy is more effective in affecting economic activity if many resources are unemployed because in such a scenario, fiscal policy can help to stimulate demand and create employment opportunities. When the economy is already close to full employment, fiscal policy may lead to inflationary pressures rather than boosting economic activity.

Fiscal Policy Is More Effective in Affecting Economic Activity If