Question

Fiscal policy is more effective in affecting economic activity if: ___________.

a) many resources are unemployed.
b) there is a real shock instead of an aggregate demand shock.
c) the economy returns to its long-run potential growth rate almost immediately.
d) there is a long implementation lag.

Answer 1

Answer:

b) there is a real shock instead of an aggregate demand shock.

Explanation:

Fiscal policy is the process of influencing economic activities by way of taxation and government spending.

Fiscal policy is most effective in dealing with deep recession or an economic situation characterised by a consistent fall in gross domestic product(GDP) for over two quarters.