Despite the Fact the Fiscal Policy Is Not Effective When

question 90

Multiple Choice

Despite the fact the fiscal policy is not effective when dealing with recession, Canadian government conducted an expansionary fiscal policy in response to the 2008-2009 financial crisis and recession. What might explain best the rationale for this policy?

• A) Since the US did not conduct an expansionary fiscal policy, Canada had to do it.
• B) Canada had a budget surplus and could afford to conduct an aggressive expansionary policy.
• C) The muted response proved politically unpopular, and it was increasingly apparent that the recession was worldwide in scope, requiring a coordinated response internationally.
• D) No other countries conducted an expansionary fiscal policy, so Canada had to do it.

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Definitions:

Initial Outlay

The upfront expenditure necessary to initiate a project or investment.

Incremental Cash Flows

The additional cash flow generated by a company as a result of a decision to undertake a new project or investment.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are worth more than the cash they cost.

Sunk Costs

Costs that have been incurred and cannot be recovered, not affecting future business decisions.