Question

If a fiscal policy change is going to exert a stabilizing impact on the economy, it musta. add demand stimulus during a slowdown but restraint during an economic boom.b. exert an expansionary impact during all phases of the business cycle.c. restrain aggregate demand during all phases of the business cycle.d. keep the government's budget in balance.

Answer 1

A) add demand stimulus during a slowdown but restraint during an economic boom.

Step-by-step explanation:

Fiscal policy is a monetary instrument by which the government manipulates the economy in order to stabilize it. In times of crisis and recession, the government uses expansionary fiscal policy (increased public spending and tax cuts) to increase aggregate demand. On the contrary, in times of economic overheating (economic boom), the government uses contractionary fiscal policy (lowering public spending and raising taxes) to cool economic activity and prevent inflation from occurring.