The following () fiscal policy is thoroughly counter-cyclical.This is a multi answer question. You can select one or more options as the answer.A.Increases government spending and cuts taxes during a recessionB.Increase government spending and cut taxes when the economy is booming C.Increase government spending and raise taxes when the economy is boomingD.Cut government spending and taxes in a recession
Question
The following () fiscal policy is thoroughly counter-cyclical.This is a multi answer question. You can select one or more options as the answer.A.Increases government spending and cuts taxes during a recessionB.Increase government spending and cut taxes when the economy is booming C.Increase government spending and raise taxes when the economy is boomingD.Cut government spending and taxes in a recession
Solution
The correct answers are:
A. Increases government spending and cuts taxes during a recession D. Cut government spending and taxes in a recession
These options represent counter-cyclical fiscal policies because they involve taking actions that are opposite to the business cycle. During a recession, the government can stimulate the economy by increasing spending and cutting taxes. This can increase demand and help to boost economic activity. On the other hand, during a boom, the government can cool down the economy by cutting spending and raising taxes. However, this is not a counter-cyclical policy, but rather a pro-cyclical policy. Therefore, options B and C are not correct.
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