Which of the following is part of the synthesis view of fiscal policy?
A) During a severe recession, the best policy is a "balanced budget policy."
B) During a recession, higher real interest rates and lower net exports will help direct the economy back to full employment.
C) Since changes in discretionary policy are easy to time, fiscal policy should be altered in response to each minor disturbance.
D) Automatic stabilizers help reduce the fluctuations in aggregate demand and output.

Question

Quizplus · Accepted Answer

The synthesis view of fiscal policy emphasizes the importance of both discretionary policy and automatic stabilizers. Option A is incorrect because a balanced budget policy during a severe recession could exacerbate the economic downturn by reducing government spending. Option B is incorrect because higher real interest rates and lower net exports will likely worsen the recession by reducing private investment and aggregate demand. Option C is incorrect because frequent changes in discretionary policy could create uncertainty and destabilize the economy. Option D is correct because automatic stabilizers (such as unemployment benefits) help stabilize the economy by increasing government spending during a recession and reducing government spending during a boom.

Which of the Following Is Part of the Synthesis View