Which of the following is most likely to close a recessionary gap in the economy?
A) a decrease in the expenditure on infrastructure
B) an increase in the income tax rate
C) an increase in the rate of foreign exchange
D) a decrease in money supply
E) an increase in the compensation for government employees

Question

Quizplus · Accepted Answer

An increase in compensation for government employees would stimulate consumer spending and ultimately aggregate demand, which could lead to increased economic activity and potentially close the recessionary gap. A decrease in expenditure on infrastructure or a decrease in money supply would likely further decrease economic activity and exacerbate the recessionary gap. Similarly, an increase in income tax rates or an increase in the rate of foreign exchange would decrease disposable income and decrease the attractiveness of exports, respectively, leading to a decrease in aggregate demand and further widening of the recessionary gap.

Which of the Following Is Most Likely to Close a Recessionary