An expansionary fiscal policy would be countercyclical if it was enacted after:
A)equilibrium income rose above potential income.
B)equilibrium income fell below potential income.
C)inflation rose.
D)unemployment fell.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy, which involves increasing government spending and/or decreasing taxes, is considered countercyclical when it is used to combat economic downturns. It is enacted to stimulate demand and economic activity, thereby raising equilibrium income towards potential income. This is most appropriate when equilibrium income has fallen below potential income, indicating an economic slowdown or recession.

An Expansionary Fiscal Policy Would Be Countercyclical If It Was