How might fiscal policy be used to correct a recessionary gap?
A)The exchange rate would be adjusted to encourage imports.
B)The exchange rate would be adjusted to discourage imports.
C)Government spending would be adjusted to increase aggregate demand.
D)Business operations would be regulated by the government to become more efficient.

Question

Quizplus · Accepted Answer

Fiscal policy refers to government spending and taxation policies that influence aggregate demand in the economy. To correct a recessionary gap and boost aggregate demand, the government can increase its spending on infrastructure, education, and social programs. This would create jobs and stimulate consumer spending, leading to an increase in economic activity. Additionally, the government can cut taxes to put more money in the pockets of individuals and businesses, boosting their spending power and overall demand in the economy. Thus, in a recessionary gap, the government can use expansionary fiscal policy to encourage economic growth and prevent a prolonged recession. Options A and B are related to exchange rate policies, which fall under the purview of monetary policy. Option D describes regulatory interventions, which are not directly related to fiscal policy.

How Might Fiscal Policy Be Used to Correct a Recessionary