A question from my CPA exam studies

[UTViking]

I ran across this question while studying for the CPA exam. Thought you might find it interesting.

"If a gov't were to use only fiscal policy to stimulate the economy from a recession, it would...."

A. Raise consumer taxes and increase gov't spending.
B. Lower business taxes and gov't spending.
C. Increase the money supply and increase gov't spending.
D. Lower consumer taxes and increase gov't spending.

 

[Crockett]

Well, looks like the Republicans and Democrats working together in Washington can deliver the correct answer. D!

 

[Uninformed]

fiscal policy is government spending and taxation. In order to stimulate the economy the government lowers taxes or increases spending. To increase spending the government borrows money or prints money which leads to inflation. The important thing to remember is that fiscal policy has consequences and sometimes those consequences are worse than the cure - see Greece.

 

[Mr. Deez]

I think they're looking for D, but I'm surprised to see that on a CPA exam.

 

[UTViking]

The book answer is D.