Question

When the economy entered a serious recession in 2008, the response of the U.S. government was to institute a $700 billion bailout plan, pursue other heavy deficit spending, and take on unusually large liabilities through bond and money market fund guarantees. This is an example of:

functional finance and expansionary fiscal policy.
procyclical fiscal policy.
fiscal policy that employs automatic stabilizers as the primary means of economic stabilization.
sound finance as fiscal policy

Answer 1

functional finance and expansionary fiscal policy

Step-by-step explanation:

Functional finance is an economic theory proposed by Abba P. Lerner, based on the principles of efficient demand and chartalism. It states that government should finance itself to accomplish explicit goals such as subduing the business cycle, reaching high employment, guaranteeing development and low inflation.

Expansionary fiscal policy is a type of fiscal policy involving a reduction in taxes, an increase in government spending, or both, to counter recessionary pressure. A reduction in taxes means households have more disposal funds to spend