What is the effect of counter-cyclical fiscal policy on the price level?
A)It will increase in the case of a recessionary gap.
B)It will increase in the case of an inflationary gap.
C)It will decrease in the case of a recessionary gap.
D)It will have no effect in the case of a recessionary gap.
E)It will have no effect in the case of an inflationary gap.

Question

Quizplus · Accepted Answer

Counter-cyclical fiscal policy aims to reduce fluctuations in the economic cycle by increasing government spending or cutting taxes during a recession (recessionary gap), which increases aggregate demand and thus can lead to an increase in the price level.

What Is the Effect of Counter-Cyclical Fiscal Policy on the Price