Which of the following statements about fiscal policy is the best example of "gross tuning"?
A)The government decreases tax rates to decrease an inflationary gap.
B)The government continuously alters its spending and taxing plans to hold real GDP at potential.
C)The government uses automatic stabilizers to reduce any output gaps.
D)The government cuts taxes to remove a large and persistent recessionary gap.
E)The government increases its spending to reduce an inflationary gap.

Question

Quizplus · Accepted Answer

Gross tuning refers to the use of fiscal policies in a broad, overall manner to stabilize the economy rather than making small adjustments. Cutting taxes to remove a large and persistent recessionary gap is a broad, overall measure and hence an example of gross tuning. The other options involve more precise adjustments and are therefore not examples of gross tuning.

Which of the Following Statements About Fiscal Policy Is the Best