Fiscal policy is increased in its effectiveness through:

Question

Quizplus · Accepted Answer

Fiscal policy can be more effective through the multiplier effect, where an initial increase in government spending or decrease in taxes leads to increased economic activity and further increases in income and spending throughout the economy. This can lead to larger overall increases in output and employment than would be expected based solely on the initial increase in government spending or tax cut. Administrative lags can hinder the effectiveness of fiscal policy by delaying the implementation of policy changes, while crowding out can partially offset the expansionary effects of fiscal policy by reducing private sector spending or investment. Monetary policy is a separate tool of macroeconomic stabilization and not directly related to the effectiveness of fiscal policy.

Fiscal Policy Is Increased in Its Effectiveness Through