If a contraction in aggregate demand causes a recession, the Great Moderation consensus on macroeconomics suggests that:
A) fiscal discipline with a balanced budget eventually stimulates aggregate demand.
B) fiscal policy should take the leading role in economic stabilization.
C) the use of discretionary fiscal policy is counterproductive except in special circumstances.
D) monetary discipline with a reduction in the money supply eventually stimulates aggregate demand.

Question

Quizplus · Accepted Answer

The Great Moderation consensus on macroeconomics suggests that the use of discretionary fiscal policy is counterproductive except in special circumstances. This is because fiscal policy can be slow to implement and can have unintended effects, leading to a larger budget deficit and increased government debt. Therefore, the Great Moderation consensus advocates for a focus on monetary policy and allowing markets to adjust on their own.

If a Contraction in Aggregate Demand Causes a Recession, the Great