Despite the fact the fiscal policy is not effective when dealing with recession, Canadian government conducted an expansionary fiscal policy in response to the 2008-2009 financial crisis and recession. What might explain best the rationale for this policy?
A) Since the US did not conduct an expansionary fiscal policy, Canada had to do it.
B) Canada had a budget surplus and could afford to conduct an aggressive expansionary policy.
C) The muted response proved politically unpopular, and it was increasingly apparent that the recession was worldwide in scope, requiring a coordinated response internationally.
D) No other countries conducted an expansionary fiscal policy, so Canada had to do it.

Question

Quizplus · Accepted Answer

The political pressure to respond to the recession was mounting, and it became clear that the recession was a global phenomenon, requiring coordinated international action. Canada likely felt it necessary to join in the effort to avoid being left behind or criticized for inaction. Option A and D are incorrect because they suggest that Canada only acted out of a sense of obligation to keep up with other countries, but this is unlikely to be the main factor driving policy decisions. Option B is incorrect because having a budget surplus alone does not necessarily justify expansionary fiscal policy.

Despite the Fact the Fiscal Policy Is Not Effective When