If the economy is in a recession,the most appropriate fiscal policy would be to:
A) decrease government spending in order to balance the budget.
B) decrease both government spending and taxes.
C) increase government spending and cut taxes,thus running a higher budget deficit.
D) increase government spending and increase taxes in order to keep the budget balanced.

Question

Quizplus · Accepted Answer

During a recession, the government can use expansionary fiscal policy to stimulate economic growth. This means increasing government spending and cutting taxes, even if it leads to a higher budget deficit. This increased spending stimulates demand and job creation, and the tax cuts put more money into the hands of consumers, which can lead to increased spending and investment. Option A is not appropriate as it may lead to further economic contraction. Option B might be used for stabilization purposes but it would take time to balance the budget. Option D is not appropriate as increasing taxes would decrease aggregate demand, causing GDP to fall further.

If the Economy Is in a Recession,the Most Appropriate Fiscal