Discretionary ﬁscal policy will likely cause budget
A) surpluses during recessions and deﬁcits during periods of demand-pull inﬂation.
B) deﬁcits during recessions and surpluses during periods of demand-pull inﬂation.
C) surpluses during both recessions and periods of demand-pull inﬂation.
D) deﬁcits during both recessions and periods of demand-pull inﬂation.

Question

Quizplus · Accepted Answer

Discretionary fiscal policy involves government actions to intentionally change spending or taxation levels. During recessions, discretionary fiscal policy typically involves tax cuts and/or increased government spending to stimulate the economy. This results in a budget deficit. Conversely, during periods of demand-pull inflation, the government may implement policies such as tax increases and/or reduced government spending to decrease demand and inflationary pressures, resulting in a budget surplus. Therefore, discretionary fiscal policy will likely cause deficits during recessions and surpluses during periods of demand-pull inflation.

Discretionary ﬁScal Policy Will Likely Cause Budget