If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:
A)increased government spending or increased taxation, or a combination of the two actions.
B)increased government spending or decreased taxation, or a combination of the two actions.
C)increased government spending or increased taxation, but not a combination of the two actions.
D)decreased government spending or decreased taxation, or a combination of the two actions.

Question

Quizplus · Accepted Answer

In a recession, the economy is not growing, and there is high unemployment. By increasing government spending or decreasing taxation, individuals and businesses will have more money to spend, which can increase demand for goods and services, leading to more production and ultimately more employment. The combination of increased government spending and decreased taxation would provide extra demand in the short term while giving incentives for businesses to invest, leading to increased supply and eventually growth.

If the Economy Is in a Recession and Prices Are