If an economy is 2% below its long-run potential growth rate,the federal government can offset a recession with a 2% increase in discretionary spending.

Question

Quizplus · Accepted Answer

While increasing discretionary spending may help stimulate the economy, it is not always a guarantee to offset a recession or bring the economy back to its long-run potential growth rate. The effectiveness of such spending depends on various factors such as the nature of the recession, the source of funding, and the overall economic conditions. Additionally, the appropriate response to a recession may vary and may involve a mix of monetary and fiscal policy actions.

If an Economy Is 2% Below Its Long-Run Potential Growth