Expansionary fiscal policy during a recession is most effective when it
A) creates jobs, even if they are on unproductive projects.
B) directs the economy to full employment and resources into productive projects.
C) substantially changes the composition of aggregate demand.
D) provides members of Congress with large political contributions.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy is most effective when it is directed towards productive projects that can increase the potential output of the economy, and move it towards full employment. Unproductive spending may provide a temporary boost but can lead to inflationary pressures and little long-term benefit. Changing the composition of aggregate demand can also be effective, but only if it leads to a shift towards more investment and consumption spending. Political contributions should not be a consideration when implementing fiscal policy.

Expansionary Fiscal Policy During a Recession Is Most Effective When