Which of the following is an appropriate fiscal policy prescription for the government to follow?
A)Deficit reduction during a recession.
B)Deficit reduction when there is excess AD.
C)Deficit expansion in an inflationary gap.
D)Deficit reduction during a war.

Question

Quizplus · Accepted Answer

Deficit reduction when there is excess aggregate demand (AD) is appropriate because it helps to cool down the economy, reducing inflationary pressures. This is achieved by decreasing government spending or increasing taxes, which lowers aggregate demand.

Which of the Following Is an Appropriate Fiscal Policy Prescription