Question

Activist fiscal policies:

A. generally produce balanced budgets.
B. usually produce budget surpluses.
C. usually produce budget deficits.
D. do not have any systematic effect on budget surpluses or deficits.

Answer 1

Activist fiscal policies usually produce budget deficits. Fiscal policy is conducted through discretionary fiscal policy or through automatic stabilizers. Hence, the correct answer is option (C).

Step-by-step explanation:

Activist fiscal policies involve deliberate government actions to influence the economy, often through changes in government spending and taxation. Many economists and politicians criticize the use of fiscal policy due to concerns over time lags, the impact on interest rates, and the inherently political nature of fiscal policy.

When policymakers implement activist fiscal policies to stimulate economic growth or combat a recession, they typically increase government spending or reduce taxes. While these measures can boost economic activity, they may also lead to budget deficits as government expenditures exceed revenue. Therefore, option C is correct.