To counteract the effect of automatic stabilisers during a recession and keep the budget balanced, the federal government would need to ________ government spending, or ________ taxes, which would ________ aggregate demand.
A)increase; decrease; increase
B)increase; increase; reduce
C)decrease; decrease; increase
D)decrease; increase; reduce

Question

Quizplus · Accepted Answer

To counteract the effect of automatic stabilisers during a recession and keep the budget balanced, the federal government would need to decrease government spending, or increase taxes, which would reduce aggregate demand. This is because reducing government spending or increasing taxes would decrease disposable income and therefore reduce consumption, investment, and net exports, leading to a decrease in aggregate demand.

To Counteract the Effect of Automatic Stabilisers During a Recession