What is one solution for an economy stuck in a recessionary output gap?
A) Decrease production.
B) Increase government spending.
C) Decrease government spending.
D) Increase inventories.

Question

Quizplus · Accepted Answer

When an economy is stuck in a recessionary output gap, it means that it is producing below its potential output level. One solution to increase output and close the gap is to increase government spending, which can help to stimulate demand for goods and services, leading to increased production and employment. This solution is often used by governments during times of recession or economic downturns, and is known as fiscal stimulus. Decreasing production or inventories would only make the output gap worse, while decreasing government spending could lead to further decreases in demand, worsening the recession.

What Is One Solution for an Economy Stuck in a Recessionary