Which of the following is the most effective fiscal policy to fight a recession if people react to uncertainty by saving all additional money that they earn or receive?

Question

Quizplus · Accepted Answer

If people are saving all additional money due to uncertainty, a tax cut or rebate may not be effective as the extra money may not be spent. However, an increase in government spending would inject money into the economy, potentially creating job opportunities and stimulating consumer demand, even if people are saving. A do-nothing strategy that relies on automatic stabilizers may not be effective enough to combat a recession.

Which of the Following Is the Most Effective Fiscal Policy