Question

1. What does a timely fiscal stimulus mean?

a. it means achieving the best results in the most cost-effective way

b. the effect of the stimulus are felt while the economy is below its potential output

c. the stimulus should be put in place before an economic downturn to minimize the effects of a recession

d. a stimulus is most productive when it is implemented at the end of recession than at the start to avoid inflation

2. A targeted fiscal stimulus is one that

I. goes to households or businesses most likely to raise spending in response to the stimulus and this increase gross domestic product in the short run

II. provides the greatest benefit to the people most adversely affected by the slowdown

III. aims at higer-income households who can generally smooth their consumption over the business cylce

IV. requires minimal legislation so that it can be implemented with no delays.

Answer 1

1. b) the effect of the stimulus are felt while the economy is below its potential output.

In order to stimulate economy government cuts taxes or increases spending in an attempt to revive the economy. The stimulus in order to be effective should be timely, temporary, and targeted. It should be timely otherwise slow implementation will lead to overexpansion and higher inflation

2. I) goes to households or businesses most likely to raise spending in response to the stimulus and thus increase gross domestic product in the short run.

This is because the stimulus should provide greatest benefit to those who are adversely affected, who in turn will spend the additional money recieved while help in improving the economy.