Question
Consider the following statements about fiscal
policy: 1. Fiscal policy involves government spending and taxation to influence the economy. 2. Counter-cyclical fiscal policy refers to reducing government spending during a recession. 3. Fiscal policy aims to achieve economic stability and growth. Which of the above statements are correct?Solution
Fiscal policy uses spending and taxation to stabilize and grow the economy (statements 1 and 3). Counter-cyclical fiscal policy increases spending during recessions to stimulate demand (statement 2 is incorrect).
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