Suppose the economy is in a recession. A fiscal policy that would counteract contractionary pressures is a(n):
A)decrease in government transfer payments
B)decrease in government transfer payments.
C)increase in government purchases of goods and services
D)increase in government purchases of goods and services.
E)increase in tax rates
F)increase in tax rates.
G)decrease in interest rates.
H)decrease in interest rates

Question

Quizplus · Accepted Answer

An increase in government purchases of goods and services will increase aggregate demand and stimulate economic growth, counteracting the contractionary pressures of a recession. Decreasing transfer payments or increasing tax rates could worsen the recession by reducing consumer spending and decreasing aggregate demand. Decreasing interest rates is a monetary policy, not a fiscal policy.

Suppose the Economy Is in a Recession