Which of the Following Statements About the Effectiveness of the Fiscal

question 57

Multiple Choice

Which of the following statements about the effectiveness of the fiscal and the monetary policies in response to a recession in a small open economy is true?

• A)In recession,fiscal policy is ineffective,but monetary policy is effective.
• B)In recession,fiscal policy is effective,but monetary policy is ineffective.
• C)In recession,both fiscal and monetary policies are effective.
• D)In recession,both fiscal and monetary policies are ineffective.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper substitutes.

Output Effect

The impact that changes in production levels have on a company's total revenue, often influenced by market demand and price.

Fixed Proportions

A production scenario where inputs must be combined in strict, fixed ratios to produce an output, allowing no substitutions.

MRP

Stands for Material Requirements Planning, a system for calculating the materials and components needed to manufacture a product.