Why might an expansion in government spending increase the severity of the coordination problem during a recession?
A) Increases in government spending will not affect the composition of aggregate demand.
B) Congress is unlikely to approve increases in government spending during a recession.
C) Spending increases will be driven by political considerations and will often flow into areas where resources are already fully employed.
D) Government spending can be counted on to flow toward high productivity projects.

Question

Quizplus · Accepted Answer

During a recession, resources are highly likely to be fully utilized or underutilized. By expanding government spending, funds are injected into the economy, leading to an increase in demand and putting further pressure on resources which are already scarce. This results in a higher severity of coordination problems, as resources may not be allocated efficiently due to increased competition. Additionally, when government spending is driven by political considerations, it is unlikely that it will be directed towards high productivity projects which require a higher level of coordination.

Why Might an Expansion in Government Spending Increase the Severity