Below is some information about the state of the budget and the economy.
1.A budget deficit and a recessionary gap.
2.A budget deficit and an inflationary gap.
3.A budget surplus and a recessionary gap.
4.A budget surplus and an inflationary gap.
-Refer to the information above to answer this question.When would a counter-cyclical fiscal policy call for a decrease in government spending or a tax increase?
A)1 only.
B)1 and 4.
C)2 only.
D)2 and 4.

Question

Quizplus · Accepted Answer

Counter-cyclical fiscal policy aims to reduce economic fluctuations. It calls for a decrease in government spending or a tax increase during periods of inflationary gaps (to cool down the economy) and not during recessionary gaps (where stimulus is needed). Thus, options 2 and 4, where there are inflationary gaps, are correct.

Below Is Some Information About the State of the Budget