Suppose the economy is in a recession.To increase demand using discretionary fiscal policy,the government can:

Question

Quizplus · Accepted Answer

During a recession, raising interest rates (Option A) can actually make matters worse as it reduces consumer and business spending. Similarly, shrinking government spending or raising taxes (Option B) can reduce aggregate demand and worsen the recession. Therefore, the best option to increase demand during a recession is to increase government spending or cut taxes (Option C), which will lead to increased consumer and business spending and stimulate economic growth. Option D, cutting interest rates may also be helpful in increasing demand, but it is typically a policy enacted by the central bank rather than the government.

Suppose the Economy Is in a Recession