The fundamental idea of fiscal policy is that
A) the government should spend more than it collects in taxes.
B) decision making should be left to the Council of Economic Advisers.
C) the government can change the equilibrium GDP by promoting a change in public and/or private spending.
D) the government should always balance its budget.
E) unemployment is a less serious concern than inflation.

Question

Quizplus · Accepted Answer

Fiscal policy is the use of government spending and taxation policies to influence the economy. The fundamental idea behind this policy is to change the equilibrium GDP by promoting a change in public and/or private spending. This can be done by either increasing government spending or reducing taxes to stimulate aggregate demand and economic activity or by reducing government spending or increasing taxes to reduce inflationary pressures. Therefore, option C is the best choice.

The Fundamental Idea of Fiscal Policy Is That