As a global recession began in late 2008,the governments of all major economies searched for policy responses to dampen the effects of the recession.In general,governments were aiming to
A)shift the AD curve to the left by decreasing tax rates.
B)increase potential GDP.
C)shift the AS curve to the right through large increases in government spending.
D)shift the AD curve to the right through large increases in government spending.
E)shift the AS curve to the left by increasing wage rates.

Question

Quizplus · Accepted Answer

The governments of major economies aimed to shift the AD curve to the right through large increases in government spending to stimulate economic growth and prevent further decline during the recession. Option A, decreasing tax rates, may have been a policy response in some cases, but it is not a comprehensive solution to a global recession. Option B, increasing potential GDP, is a long-term goal that may not be achievable in the short term during a recession. Option C, shifting the AS curve to the right through large increases in government spending, is not an effective solution during a recession as it may lead to inflationary pressures. Option E, increasing wage rates, may lead to a decrease in employment and adversely affect economic growth during a recession.

As a Global Recession Began in Late 2008,the Governments of All