What would be appropriate government action to close a recessionary gap?
A)Use policy to decrease aggregate supply.
B)Use policy to decrease potential GDP.
C)Use counter-cyclical fiscal policy to decrease aggregate demand.
D)Use counter-cyclical fiscal policy to increase aggregate demand.

Question

Quizplus · Accepted Answer

Closing a recessionary gap occurs when the actual output in the economy is less than the potential output. This indicates that there is a shortfall in demand. Therefore, the appropriate government action would be to increase aggregate demand using counter-cyclical fiscal policy, which involves either increasing government spending or decreasing taxes. This helps to stimulate economic activity, increase output, and create more jobs.

What Would Be Appropriate Government Action to Close a Recessionary