Expenditure and tax multipliers are likely to be large
A) if the economy is experiencing deflation.
B) when real interest rates rise rapidly.
C) during severe recessions.
D) if the economy has negative cyclical unemployment.
C
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The primary conclusion of using inflation accounting is that inflation
a. distorts the tax system, and results in slower economic growth. b. reduces the national debt to its nominal value instead of its real value. c. causes recessions, and increases the structural deficit. d. distorts government budget accounting by exaggerating interest expense.
To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change. B. increase. C. decrease. D. either increase or decrease depending on the relative shifts of AD and AS.