The ________ impact of a negative aggregate demand shock is ________ when the government does not target the deficit because targeting the deficit causes further negative aggregate demand shocks.
A) adverse; reduced
B) adverse; increased
C) neutral; increased
D) neutral; reduced

Question

Quizplus · Accepted Answer

When the government does not target the deficit, it avoids implementing contractionary fiscal policies that could exacerbate the negative aggregate demand shock, thereby reducing the adverse impact.

The ________ Impact of a Negative Aggregate Demand Shock Is