During Which Phases of the Business Cycle Would Fiscal Policies

question 35

Essay

During which phases of the business cycle would fiscal policies that reduce budget deficits (or even increase surpluses) be appropriate?

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Definitions:

Long Run

A period of time in economics wherein all inputs and factors of production can be varied, with no fixed factors.

Variable Inputs

Resources or factors of production that can be adjusted in the short run to meet changes in demand.

Diminishing Returns

An economic concept indicating that as more investment is made in a particular area, the rate of profit from that investment, after a certain point, starts to decline.

Marginal Product

The additional output produced by using one more unit of a particular input, while holding other inputs constant.