Question

Under what scenario could fiscal policy make a recession even worse?

Select one:

a. If tax cuts are not evenly distributed across income groups.

b. If the multiplier is bigger than 1

c. If there is no crowding out of private spending

d. If deficit financed fiscal policy increases the national debt to the point it scares investors away and decreases spender confidence

Answer 1

Answer:

The correct answer is letter "A": If tax cuts are not evenly distributed across income groups.

Explanation:

Fiscal policy refers to the combined governmental decisions regarding a country's taxing and spending. The term fiscal policy is associated with British economist John Maynard Keynes (1883-1946) who believed governments should influence macroeconomic productivity levels. Though, it could be a trap if it is not allocated correctly among different income groups. Economies such as Brazil, for instance, have allocated higher taxes for low-income people creating economic disparity.