If Congress votes to increase government purchases and at the same time decreases personal income taxes, they
A)have decided to balance the federal budget.
B)have voted for the proper policy to counteract a recessionary gap.
C)have voted for the proper policy to counteract an inflationary gap.
D)are trying to achieve a federal budget surplus.

Question

Quizplus · Accepted Answer

Increasing government purchases will lead to an increase in aggregate demand, which will counteract a recessionary gap. Decreasing personal income taxes will increase disposable income and boost consumption, further increasing aggregate demand. This combination of fiscal policy tools is known as expansionary fiscal policy, which is appropriate in response to a recessionary gap.

If Congress Votes to Increase Government Purchases and at the Same