If a fiscal policy change is going to exert a stabilizing impact on the economy, it must
A) add demand stimulus during a slowdown but restraint during an economic boom.
B) exert an expansionary impact during all phases of the business cycle.
C) restrain aggregate demand during all phases of the business cycle.
D) keep the government's budget in balance.

Question

Quizplus · Accepted Answer

To exert a stabilizing impact on the economy, a fiscal policy change should work counter-cyclically, adding demand stimulus during a slowdown but restraint during an economic boom. This ensures that the policy does not exacerbate the cyclical fluctuations in the economy and instead promotes a more stable growth trajectory. Option B and C represent extreme positions that may not be appropriate for all phases of the business cycle. Option D is not relevant as stabilizing the economy is the primary goal of fiscal policy, and keeping the budget in balance is secondary.

If a Fiscal Policy Change Is Going to Exert a Stabilizing