The economy is in a recession and the recessionary gap is large. A discretionary fiscal stimulation package that would avoid a budget deficit is a simultaneous and equal

Question

Quizplus · Accepted Answer

A simultaneous increase in government expenditure and an increase in taxes would avoid a budget deficit and provide the necessary fiscal stimulus to the economy. The increase in government expenditure would stimulate aggregate demand, while the increase in taxes would reduce disposable income and reduce people's ability to save, thereby encouraging spending, and thus raising aggregate demand. This would help fill the recessionary gap, reducing the impact of the recession.

The Economy Is in a Recession and the Recessionary Gap