Fiscal policy is most desirable if the economy returns to the long-run equilibrium immediately after a shock occurs.

Question

Quizplus · Accepted Answer

Fiscal policy can help stabilize the economy in the short run, but it may not necessarily lead to an immediate return to the long-run equilibrium. There are several factors that can affect how quickly the economy adjusts, such as the magnitude of the shock, the structure of the economy, and the time it takes for policy measures to take effect. Therefore, while fiscal policy can be effective in addressing short-term fluctuations, it may not always lead to an immediate return to the long-run equilibrium.

Fiscal Policy Is Most Desirable If the Economy Returns to the Long-Run