In a recession, the federal government may choose to increase spending in order to:
A) decrease real interest rates.
B) decrease the overall price level.
C) achieve full-employment GDP.
D) increase exports.

Question

Quizplus · Accepted Answer

Increasing government spending can lead to an increase in aggregate demand, which can increase economic output and help achieve full-employment GDP. Option A is incorrect because increasing spending can lead to an increase in real interest rates. Option B is incorrect because increasing spending can lead to inflation, which would increase the overall price level. Option D is incorrect because increasing spending alone cannot directly increase exports.

In a Recession, the Federal Government May Choose to Increase