Using Discretionary Fiscal Policy to Smooth the Short-Term Business Cycle

question 301

Multiple Choice

Using discretionary fiscal policy to smooth the short-term business cycle is challenging because:

• A) the data needed are not available for almost a month after the fact.
• B) it often takes up to a quarter to confirm a recessionary phase.
• C) once the policy is decided, it can be implemented immediately.
• D) deciding on fiscal policy often takes a long and contentious legislative process.

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Definitions:

Real Interest Rates

The interest rate modified to account for inflation, indicating the actual cost of borrowing and the genuine return for investors.

Appreciate

To increase in value or worth over time, commonly used in financial contexts.

Depreciate

The process by which an asset's value decreases over time due to use, wear and tear, or obsolescence.

Supply-of-Pounds Curve

The supply-of-pounds curve represents the amount of British pounds that suppliers (like the British) are willing to provide at different exchange rate levels, often used in the context of Forex markets.