Fiscal policy is more effective than monetary policy in increasing aggregate demand when _____.
A) the economy is in a boom
B) inﬂation and unemployment levels are at very low levels
C) the crowding out effect is strong
D) interest rate changes have no effect on production and consumption

Question

Quizplus · Accepted Answer

Fiscal policy, which involves government spending and taxation, is more effective than monetary policy in increasing aggregate demand when interest rate changes do not affect production and consumption. This is because fiscal policy can directly increase demand through government spending or indirectly by altering taxes, whereas monetary policy relies on interest rate changes to influence spending and investment. If these changes do not affect production and consumption, monetary policy becomes less effective.

Fiscal Policy Is More Effective Than Monetary Policy in Increasing