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Fiscal policy is concerned with the federal government response to a recession. Which of the variables...

Fiscal policy is concerned with the federal government response to a recession. Which of the variables in the GDP Expenditure equation would you consider to be pro cyclical?

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Answer #2

As per the GDP expenditure equation, total GDP is the sum total of Consumption + Investment + Government expenditure + Net exports.

Out of these four variables three are pro-cyclical i.e. they increase when the GDP is high and decrease when the GDP is running low. These variables are Consumption, investment, and net exports. Only the government is anti cyclical i.e. when the GDP in the economy increase the government expenditure decrease and when the GDP is low the government expenditure increases.

answered by: anonymous
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