When the government considers whether it should change its spending in response to a recession, it must weigh the tradeoff between ____________ and ________________.
A) faster recovery time; inflation
B) less output; higher prices
C) more output; lower prices
D) faster recovery time; lower prices

Question

Quizplus · Accepted Answer

In response to a recession, the government may consider increasing its spending to stimulate the economy and promote faster recovery. However, increased government spending can also lead to inflation, as more money in circulation can drive up prices. Therefore, the government must weigh the tradeoff between the benefits of faster recovery time and the costs of potentially higher inflation. Choice A correctly identifies this tradeoff.

When the Government Considers Whether It Should Change Its Spending