If there is a recessionary gap in the economy, discretionary fiscal policy would likely involve
An action to

Question

Quizplus · Accepted Answer

Discretionary fiscal policy involves intentional changes in government spending and/or taxation to stabilize the economy. A recessionary gap means that actual GDP is below potential GDP, indicating there is not enough demand in the economy. To stimulate demand, the government must shift the aggregate demand curve to the right by increasing government spending and/or cutting taxes, which will increase consumption and investment, ultimately leading to an increase in aggregate demand. Therefore, the correct answer is (A) shift the aggregate demand curve to the right.

If There Is a Recessionary Gap in the Economy, Discretionary