Countercyclical fiscal policy can
A) only be employed in reaction to an existing recession
B) only be employed in reaction to an existing boom
C) be employed to prevent a potential recession or boom or in reaction to an existing recession or boom
D) only be employed to prevent a potential boom
E) only be employed to prevent a potential recession.

Question

Quizplus · Accepted Answer

Countercyclical fiscal policy can be used both to prevent a potential recession or boom by adjusting government spending and taxes in anticipation of changes in the business cycle, as well as in reaction to an existing recession or boom. It involves increasing government spending and reducing taxes during a recessionary period to stimulate aggregate demand and economic activity, and reducing government spending and increasing taxes during a period of inflation and boom to control inflationary pressures.

Countercyclical Fiscal Policy Can