Which of the following statements about counter-cyclical fiscal policy is correct?
A)It is appropriate in situations of a recessionary gap but not when an inflationary gap exists.
B)It is appropriate in situations of an inflationary gap but not when a recessionary gap exists.
C)It involves only higher government spending.
D)It involves only higher taxes.
E)It is the use of spending or taxation policies by the government to push the economy in a direction opposite to the way it was moving.

Question

Quizplus · Accepted Answer

Counter-cyclical fiscal policy involves using spending or taxation policies to push the economy in the opposite direction when it is moving in a particular direction, be it towards a recessionary gap or an inflationary gap. Hence, options A and B are incorrect. Additionally, counter-cyclical fiscal policy does not involve solely higher government spending or higher taxes, but either or both depending on the economic situation. Therefore, options C and D are also incorrect.

Which of the Following Statements About Counter-Cyclical Fiscal Policy Is