In the Early 1990s, Although the U

question 2

Multiple Choice

In the early 1990s, although the U.S. economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap. What was the reason?

• A) Policymakers believed that contractionary fiscal policies are more likely to increase employment because inflation would be lower and therefore producers could pay lower wages.
• B) Congress recognized that fiscal policy lags rendered fiscal policy ineffective.
• C) Congress was concerned that expansionary policies would increase the government budget deficit.
• D) Congress believed that the economy's self-correcting mechanism was better able to eliminate output gaps than fiscal policies.

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Definitions:

Income Effect

The correlation between income changes in an economy or for individuals and their effect on the quantity of goods and services demanded.

Opportunity Cost

The value of the next best alternative that is foregone when a decision is made to choose one option over another.

Leisure Time

Free time in which an individual is not working, is not engaged in compulsory activities, and can choose activities for relaxation, enjoyment, or other personal development.

Labor Market

The supply of available workers in relation to available work, and the dynamics of wages, employment, and income.