The pandemic-induced economic crisis led to which unprecedented fiscal development?

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To begin, evaluate what each option implies about fiscal policy during the pandemic and whether that interpretation aligns with the unprecedented development described.
Option a: 'Suspension of public debt servicing for countries severely hit by the lockdown measures' would imply a temporary relief on debt obligations. While governments did implement various liquidity supports and moratoria in some contexts, widespread formal suspension of debt servicing across multiple countries was not the hallmark measure most analysts labeled as the unprecedented development.
Option b: 'Bail out of insolvent banks (if too big to fail)' refers to bank-specific rescue actions. Although banking sector support occurred, the description of the pandemic-era fiscal novelty centers more on sovereign-level funding mechanisms rather than a sector-specific bailout, so this option does not capture the defining new instrument.
Option c: 'Large-scale issuance of joint EU bonds' denotes a collective sovereign financing tool where EU member states jointly issued bonds. This was indeed the notable novel fiscal development—granting mutual borrowing capacity to finance stabilization and recovery efforts at the EU level, something not seen on this magnitude before.
Option d: 'Abolishment of the Stability and Growth Pact' would entail removing a long-standing fiscal rule. In reality, there was debate and adjustments around rules, but the pact itself was not abolished during the pandemic; the policy response did not culminate in a formal abolition, so this option does not describe the actual unprecedented move.
In summary, option c uniquely captures the standout, novel mechanism that emerged in response to the crisis: the large-scale issuance of joint EU bonds as a collective fiscal instrument, whereas the other options describe measures that either did not become the defining unprecedented step or did not occur in that form at the EU level.

SESS0026_25-26 MCQ TEST (30%) in-class 11th December 2025, 1pm

The pandemic-induced economic crisis led to which unprecedented fiscal development?

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SESS0026_25-26 MCQ TEST (30%) in-class 11th December 2025, 1pm

The pandemic-induced economic crisis led to which unprecedented fiscal development?

View Explanation

Log in for full answers

Similar Questions

Fiscal policy refers to the idea that changes in:

Consider the following graph. Suppose the economy is currently at a point like A. Assume the central bank in this economy remains idle. What type of policy can the Government conduct to reach point B?

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Making Your Study Simpler

are changes in federal taxes and government purchases that are intended to achieve macroeconomic policy goals, and are changes in federal taxes and government spending that respond to the Business Cycle without direct government action.