What is the effect of a counter-cyclical fiscal policy?
A)It intensifies changes in GDP caused by the business cycle.
B)It dampens changes in GDP caused by the business cycle.
C)It has no effect on changes in GDP caused by the business cycle.
D)It allows the government to balance its budget.

Question

Quizplus · Accepted Answer

A counter-cyclical fiscal policy involves using government spending and taxation to counteract the natural fluctuations in GDP caused by the business cycle. During a recession, the government would increase spending and decrease taxes to stimulate demand and boost GDP. During an expansion, the government would decrease spending and increase taxes to cool down the economy and prevent overheating. Ultimately, the goal of counter-cyclical fiscal policy is to dampen the extreme highs and lows of the business cycle and promote more stable economic growth.

What Is the Effect of a Counter-Cyclical Fiscal Policy