Which of the Following Is a Problem with Discretionary Fiscal

question 34

Multiple Choice

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

• A) Discretionary changes in fiscal policy can be easily anticipated by private decision makers.
• B) It is difficult to properly time discretionary changes in fiscal policy.
• C) Discretionary fiscal policy is only effective during a recession.
• D) Discretionary fiscal policy is only effective during an economic boom.

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Definitions:

Aggregate Demand

The total demand for all goods and services within a particular economy at a given overall price level and in a given period.

Aggregate Supply

The total output of goods and services that producers in an economy are willing and able to supply at a given overall price level in a specified time period.

Price Levels

The midpoint of prices for every type of good and service produced economically.

Cost-Pull Inflation

Inflation caused by an increase in prices of inputs like labour, raw material, etc., leading to a decrease in the supply of these goods.