Although Macroeconomics Textbooks Have Taught the Logic of Fiscal Policy

question 108

Multiple Choice

Although macroeconomics textbooks have taught the logic of fiscal policy for over half a century, actual use of discretionary fiscal policy has been rare. When President George W. Bush persuaded Congress to enact a large tax cut early in his presidency, it was the first time in several decades that the fiscal policy rationale was taken seriously. Why has fiscal policy been used so infrequently?

• A)It has inherent conflicts with monetary policy.
• B)Concern about exchange-rate stabilization has limited its effectiveness.
• C)The political processes of democracy make timely fiscal policy difficult.
• D)Fiscal policy has proven to be too strong a medicine for the small economic fluctuations we have had.

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