Analysis indicates that the economy is in a recessionary gap.Which of the following is the most appropriate policy mix in this situation?
A)a budget surplus and expansionary monetary policy
B)a budget deficit and expansionary monetary policy
C)a budget deficit and contractionary monetary policy
D)a budget surplus and contractionary monetary policy

Question

Analysis indicates that the economy is in a recessionary gap.Which of the following is the most appropriate policy mix in this situation?
A)a budget surplus and expansionary monetary policy 
B)a budget deficit and expansionary monetary policy 
C)a budget deficit and contractionary monetary policy 
D)a budget surplus and contractionary monetary policy

Quizplus · Accepted Answer

In a recessionary gap, the economy needs policies that can stimulate demand and increase output. A budget deficit means that the government is spending more than it is receiving in revenues, and it can help to boost demand by increasing government spending. Expansionary monetary policy involves reducing interest rates and increasing the money supply in order to encourage borrowing and spending. Therefore, the combination of a budget deficit and expansionary monetary policy is the most appropriate policy mix in this situation.

Analysis Indicates That the Economy Is in a Recessionary Gap