A Government Encounters a Recessionary Gap and Uses Expansionary Fiscal

Multiple Choice

A government encounters a recessionary gap and uses expansionary fiscal policy to correct the problem. It may:

A) find the policy ineffective, especially if the level of public debt is already very high, since additional government borrowing may put pressure on future budgets.
B) find the policy ineffective if it has to borrow to increase government spending.
C) cause its budget balance to move toward a surplus.
D) decrease the level of public debt in the short run.