What is involved in counter-cyclical fiscal policy?
A)Higher government spending if used to eliminate an inflationary gap.
B)Higher government spending if used to eliminate a recessionary gap.
C)Higher taxes if used to eliminate a recessionary gap.
D)Lower taxes if used to eliminate an inflationary gap.
E)Government spending but not taxes.

Question

Quizplus · Accepted Answer

Counter-cyclical fiscal policy involves adjusting government spending and/or taxation in response to changes in the business cycle. In the case of a recessionary gap (when the economy is underperforming), counter-cyclical fiscal policy would involve increasing government spending to stimulate economic growth and decrease unemployment. This could be achieved through infrastructure spending, job creation programs, and other government expenditures. Therefore, choice B is correct.

What Is Involved in Counter-Cyclical Fiscal Policy