Fiscal policy during periods of relatively low unemployment and low inflation have
A) little effect due to time lags and the crowding-out effect.
B) significant effect due to the timely intervention of the president and congress.
C) significant effect because the changes in fiscal policy gives investors confidence in the economy.
D) little effect because the global market makes up fifty percent of aggregate spending.

Question

Quizplus · Accepted Answer

During periods of low unemployment and low inflation, the economy is likely operating near its potential output. Any attempt to stimulate demand through fiscal policy may result in the crowding-out effect where private investment decreases due to higher interest rates. Additionally, fiscal policy changes may take time to be implemented and take effect, resulting in time lags that further minimize its impact. Therefore, fiscal policy during these conditions has little effect.

Fiscal Policy During Periods of Relatively Low Unemployment and Low