In the early 1990s, although the U.S. economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap. What was the reason?
A) Policymakers believed that contractionary fiscal policies are more likely to increase employment because inflation would be lower and therefore producers could pay lower wages.
B) Congress recognized that fiscal policy lags rendered fiscal policy ineffective.
C) Congress was concerned that expansionary policies would increase the government budget deficit.
D) Congress believed that the economy's self-correcting mechanism was better able to eliminate output gaps than fiscal policies.

Question

Quizplus · Accepted Answer

Congress was concerned that an expansionary fiscal policy would increase the budget deficit, which would, in turn, lead to higher interest rates and reduced private investment. This concern outweighed any potential benefits from using fiscal policy to close the recessionary gap.

In the Early 1990s, Although the U