Under which of the following circumstances should an economic advisor for a small economy recommend a large increase in government spending? I. The country is in a recession that seems to be turning into a depression. II. The government has a record high budget deficit. III. A lot of infrastructure has been destroyed by a hurricane.

Question

Quizplus · Accepted Answer

A large increase in government spending may be recommended in the case of a recession turning into a depression (I) as expansionary fiscal policy can help stimulate the economy. Additionally, in the case of infrastructure destruction due to natural disasters such as hurricanes (III), government spending can help rebuild and provide necessary aid to affected areas. However, in the case of a record high budget deficit (II), it may not be prudent to recommend a large increase in government spending as it could exacerbate the deficit further.

Under Which of the Following Circumstances Should an Economic Advisor