The economy is in a recession. The desired FISCAL policy is a(n):
A) decrease in government transfer payments.
B) increase in government purchases of goods and services.
C) increase in tax rates.
D) decrease in interest rates.

Question

Quizplus · Accepted Answer

During a recession, the desired fiscal policy is expansionary, which means increasing government spending and/or decreasing taxes to stimulate economic activity. Option B fits this criteria as it involves an increase in government purchases of goods and services, which will create jobs and increase spending in the economy. Option A, decreasing government transfer payments, would have the opposite effect and could further decrease consumer spending. Option C, increasing tax rates, would decrease disposable income for consumers and businesses, also leading to decreased spending. Option D, decreasing interest rates, is a monetary policy tool controlled by the central bank, not the government, and would not be considered fiscal policy.

The Economy Is in a Recession