A countercyclical fiscal policy during a recession that effectively boosts an economy does NOT:

Question

BlackTom AI · Accepted Answer

Countercyclical fiscal policy aims to raise aggregate demand (AD) during a recession by increasing government spending or cutting taxes, which reduces cyclical unemployment and raises output and prices in the short run.

1. Relevant knowledge points and concepts
- Natural rate (or NAIRU): the long-run unemployment rate determined by structural factors; monetary and fiscal policy cannot permanently change it.
- Short-run Phillips Curve: a trade-off between inflation and unemployment; expansionary policy can lower unemployment below the natural rate temporarily but raises inflation.
- Long-run aggregate supply (LRAS): vertical at potential output; in the long run AD shifts only raise the price level, not real output or unemployment.

2. Step-by-step reasoning
- During a recession, fiscal stimulus shifts AD rightward, increasing real GDP and lowering cyclical unemployment toward the natural rate.
- In the short run this can reduce overall unemployment and increase the inflation rate.
- Attempts to push unemployment persistently below the natural rate require continually stronger stimulus, which accelerates inflation (adaptive expectations or the expectations-augmented Phillips Curve).
- Eventually, wages and prices adjust, output returns to potential, and unemployment returns to the natural rate; only the price level (inflation) is permanently higher.

3. Intermediate steps/calculations
- No numerical calculation is required; the logic follows AD/AS and Phillips Curve dynamics.

4. Why the correct answer is correct
- The statement “decrease unemployment below the natural rate without eventually increasing inflation” describes an impossible long-run outcome under standard macro theory. A successful countercyclical policy can temporarily lower unemployment below the natural rate, but it cannot do so permanently without causing rising inflation. Therefore the policy does NOT accomplish that outcome.

5. Why other options are incorrect
- “Increase cyclical unemployment eventually time causing inflation.” Incorrect: stimulus reduces, not increases, cyclical unemployment and would raise inflation rather than cyclical unemployment.
- “Boost unemployment above the natural rate without causing inflation.” Incorrect: expansionary policy does not raise unemployment above the natural rate; if anything, it lowers it and tends to raise inflation.
- “Increase the GDP deflator.” Plausible and correct: higher AD often raises the price level and thus the GDP deflator.

6. Conclusion
The correct choice is “decrease unemployment below the natural rate without eventually increasing inflation,” which matches the provided answer.

A countercyclical fiscal policy during a recession that effectively boosts an economy does NOT:单项选择题

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