Assume the economy is in the midst of a severe recession.Which of the following policies would be consistent with discretionary fiscal policy?

Question

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Reduction in federal tax rates on personal and corporate income would increase disposable income, leading to an increase in consumer spending and business investment, which could help stimulate the economy and reduce the severity of the recession. Choices A, B, and C all involve reducing government spending or increasing government revenue, which could exacerbate the recession by reducing aggregate demand.

Assume the Economy Is in the Midst of a Severe