The Dangers of Fiscal Policy

When is fiscal policy generally considered most effective by economists?

• During periods of high inflation.

• When the economy is operating at its full potential.

• When many resources are unused due to a lack of overall demand.

• To address shifts in aggregate supply.

What is a typical economic outcome when an economy experiences a "real shock" that shifts the aggregate supply curve to the left?

• Higher real GDP growth and lower inflation.

• Lower real GDP growth and lower inflation.

• Lower real GDP growth and higher inflation.

• Higher real GDP growth and higher inflation.

In reality, how do politicians often manage government spending in relation to economic cycles?

• They increase spending during recessions and decrease it during booms.

• They consistently reduce spending to pay down national debt.

• They tend to increase spending during both economic downturns and prosperous times.

• They only increase spending when the economy is booming.

What is a significant danger associated with a government accumulating excessive debt, especially when borrowing from other nations in their currency?

• It guarantees long-term economic stability.

• It reduces the need for future fiscal policy interventions.

• It can lead to increased uncertainty, financial risk, and potential economic collapse.

• It always results in lower interest rates for citizens.