Suppose the economy is at a short run equilibrium in recession.Which of the following fiscal policies would increase output and prices in the short run?

Question

Quizplus · Accepted Answer

A reduction in taxes would increase disposable income, leading to an increase in consumption and aggregate demand, which would result in an increase in output and prices in the short run. Option A, a decrease in government spending, would decrease aggregate demand and lower output and prices. Option C, an increase in taxes, would decrease disposable income, leading to a decrease in consumption and aggregate demand, resulting in a decrease in output and prices. Option D, an increase in interest rates, would decrease investment spending, leading to a decrease in aggregate demand, output, and prices in the short run.

Suppose the Economy Is at a Short Run Equilibrium in Recession.Which