Which of the following best expresses the central idea of countercyclical fiscal policy?
A) Planned deficits are experienced during economic booms and planned surpluses during economic recessions.
B) The balanced-budget approach is the proper criterion for determining annual budget policy.
C) Actual deficits should equal actual surpluses during a period of deflation.
D) Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.

Question

Quizplus · Accepted Answer

Countercyclical fiscal policy involves using deficits during recessions to stimulate the economy and surpluses during booms to restrain inflation. This approach recognizes the natural fluctuations of the economy and aims to stabilize it over the long-term. Option A is incorrect because it suggests planned deficits during economic booms, which is not consistent with countercyclical policy. Option B is incorrect because it suggests a balanced-budget approach, which is not always feasible or desirable in countercyclical policy. Option C is incorrect because it suggests that deficits and surpluses should balance during periods of deflation, which is not a primary concern of countercyclical policy.

Which of the Following Best Expresses the Central Idea of Countercyclical