An economy is in the midst of a recession. A government policy aimed at moving the economy back to potential GDP is:

Question

Quizplus · Accepted Answer

An increase in government purchases, specifically for infrastructure improvements, will increase aggregate demand, stimulate economic activity, and create jobs. This policy is aimed at moving the economy back to potential GDP by increasing spending, which is necessary to boost the economy during a recession. The other options, such as increasing taxes, would decrease spending and further worsen the recession, while decreasing unemployment benefits would harm those who are already struggling. An increase in property tax may generate revenue but would not directly stimulate economic activity.

An Economy Is in the Midst of a Recession