To close a recessionary gap through fiscal policy, the government should

Question

Quizplus · Accepted Answer

To close a recessionary gap, the government should increase government spending in order to increase aggregate demand. By increasing aggregate demand, firms will increase production and hire more workers, which will reduce unemployment and eventually lead to an increase in economic growth. This is known as expansionary fiscal policy. Decreasing government spending or increasing taxes may lead to a reduction in aggregate demand, worsening the recession. Reducing taxes may increase investment, but it may not be enough to offset the decline in aggregate demand during a recession. Thus, choice B is the best option.

To Close a Recessionary Gap Through Fiscal Policy, the Government