Question

Most economists believe that discretionary fiscal policy should be used sparingly because of the risk of: Select one: O a. sacrificing equity for efficiency. O b. budget surpluses. O c. lags in adjusting policy, so that policies designed to fight a recession may end up intensifying an inflationary gap. O d. budget deficits.

Answer 1

Answer

Question 1 answer c

Discretionary fiscal policy is usually counterproductive: the lags in adjusting fiscal policy that, all too often, policies lead to fight a slump end up intensifying inflationay gap. Discretionary fiscal policy plays the leading role only in special circumstances when monetary policy is ineffective

Question 2 answer A

Monetary policy can offset an economic fluctuations because lower interest rates reduce consumers’ cost of borrowing to buy items such as cars or houses. Monetary policy can also reduce the cost of investment in case of firms. For that reason, lower interest rates can increase spending by both households and firms, which ultimately result in boost in economy

Question 3 answer

"would, in the end ,lead to a collapse worse than the one it was called in to remedy"this was said by an economist Joseph schumpter about expansionary monetary policy