Chapter 36, Problem 1MCQ

To determine

The example of an opinion on which economists have reached a broad consensus

Answer to Problem 1MCQ

From the available options, the correct option is discretionary fiscal policy should only be used to fight recessions under special circumstances.

Explanation of Solution

Both, the monetary and fiscal policy are effective in the short run but neither of those can lower the rate of unemployment in the long run. The expansionary fiscal policy is highly effective to fight with recession in economy because this policy is used to expand the economy by increasing aggregate demand, which in turn results in the increase of output and lower unemployment rate

Expansionary monetary policy is always be used to fight recession not the discretionary monetary policy.

Discretionary fiscal policy should only be used to fight recessions under special circumstances because expansionary fiscal policy is widely used to fight economic crisis in a nation. Discretionary fiscal policy can reduce taxes and raise spending in a recession.

Therefore, the correct option is d (discretionary fiscal policy should only be used to fight recessions under special circumstances) and all other options are incorrect.

Economics Concept Introduction

Introduction: The monetary policy is used to control the supply of money in an economy to achieve the targeted economic growth. The government of a nation implements fiscal policy through spending and taxes to affect the economic climate of the country.