Question

Economists agree that if the Fed decides to go with neutral fiscal policy, then the standardized budget and deficit or surplus should be no more than 2. What is the opinion of economists regarding the fiscal policy of the Fed?

1) The Fed should implement a neutral fiscal policy
2) The Fed should implement an expansionary fiscal policy
3) The Fed should implement a contractionary fiscal policy
4) The Fed should not have a fiscal policy

Answer 1

Economists generally believe that a neutral fiscal policy is preferable for the Fed, which involves maintaining a balanced budget or a small deficit or surplus. However, there may be differing opinions among economists regarding the specific approach to fiscal policy, with some advocating for expansionary or contractionary measures.

Step-by-step explanation:

Economists generally believe that if the Fed decides to go with a neutral fiscal policy, then the standardized budget and deficit or surplus should be no more than 2. This means that the government should aim to balance its budget or have a small deficit or surplus. This is because a neutral fiscal policy helps to maintain economic stability and avoid excessive inflation or recession.

However, it is important to note that there may be differing opinions among economists on the specifics of fiscal policy. Some economists may argue for expansionary fiscal policy, which involves increasing government spending or reducing taxes to stimulate economic growth during recessions. Others may advocate for contractionary fiscal policy, which involves reducing government spending or increasing taxes to control inflation during times of economic expansion.