If the economy is in a recession and prices are relatively stable, then the discretionary ﬁscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be
A) increased government spending or increased taxation, or a combination of the two actions.
B) increased government spending or decreased taxation, or a combination of the two actions.
C) increased government spending or increased taxation, but not a combination of the two actions.
D) decreased government spending or decreased taxation, or a combination of the two actions.

Question

Quizplus · Accepted Answer

In a recession, the economy is experiencing a decrease in economic activity, which leads to lower levels of output and employment. To address this issue, discretionary fiscal policy can be implemented to stimulate economic activity. Increased government spending can boost the economy by creating jobs and increasing demand for goods and services, while decreased taxation can increase disposable income and encourage greater consumption. A combination of both policies can work together to provide a more comprehensive approach to address the recession. However, increased taxation alone may reduce disposable income and decrease consumption, therefore exacerbating the recession. Reduced government spending alone would likely lead to further decreases in output and employment.

If the Economy Is in a Recession and Prices Are