If an economy is 2 percent below the long-run Solow growth rate, the federal government can offset a recession with a 2 percent increase in discretionary spending.

Question

Quizplus · Accepted Answer

The statement is incorrect. Discretionary spending may help stimulate the economy, but there are many factors that contribute to a recession and a 2 percent increase in spending may not be enough to fully offset it. Additionally, the long-run Solow growth rate is determined by many structural factors that cannot be influenced by discretionary spending.

If an Economy Is 2 Percent Below the Long-Run Solow