Question
Consider the following statements regarding "counter-cyclical" fiscal policy:
Select the correct answer using the code given below:
- The government uses the countercyclical policy to cool down the economy during the boom period
- In countercyclical policy, the government increases spending and reduces taxes during the economic slowdown
Select the correct answer using the code given below:
Answer: Option B
Answer: (b)
The government’s fiscal policy has a big role in stabilizing the economy during business cycles. The two important phases of business cycles are boom and recession. A recession should not be allowed to grow into a deep recession.
Similarly, a boom should not explode bigger. We may say that amplifying the business cycle is dangerous (growing boom and deepening recession).
Practically fiscal policy responses using taxation and expenditure can go in two ways in response to the business cycle: Countercyclical and pro-cyclical.
Business Cycle Fiscal Policy Boom Recession Pro-Cyclical Expenditure increases Tax decreases Expenditure decreases Tax increases Counter-Cyclical Expenditure decreases Tax increases Expenditure increases Tax decreases
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Answer: (b)
The government’s fiscal policy has a big role in stabilizing the economy during business cycles. The two important phases of business cycles are boom and recession. A recession should not be allowed to grow into a deep recession.
Similarly, a boom should not explode bigger. We may say that amplifying the business cycle is dangerous (growing boom and deepening recession).
Practically fiscal policy responses using taxation and expenditure can go in two ways in response to the business cycle: Countercyclical and pro-cyclical.
Business Cycle Fiscal Policy Boom Recession Pro-Cyclical Expenditure increases Tax decreases Expenditure decreases Tax increases Counter-Cyclical Expenditure decreases Tax increases Expenditure increases Tax decreases
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