In Figure 9.8,if full-employment income is produced at $400 billion,which of the following can prevent a recession?
A)An increase in government spending.
B)An increase in taxes.
C)An increase in interest rates.
D)An increase in saving.

Question

In Figure 9.8,if full-employment income is produced at $400 billion,which of the following can prevent a recession?
A)An increase in government spending. 
B)An increase in taxes. 
C)An increase in interest rates. 
D)An increase in saving.

Quizplus · Accepted Answer

An increase in government spending would shift the aggregate demand curve to the right, increasing output and preventing a recession. Increasing taxes or interest rates or saving would reduce aggregate demand, leading to further recession.