Question:
An appropriate fiscal policy to combat a recession would be an increase of
(1) interest rates.
(2) money supply.
(3) taxes.
(4) sale of government bonds.
(5) government spending.
Correct Answer:
(5)
Answer Explanation:
During a recession, Aggregate Demand is too low, causing high unemployment. To combat this, the government should use expansionary fiscal policy. The most direct method is an increase in government spending, which injects money directly into the circular flow and stimulates economic activity through the multiplier effect.
Topic: Fiscal Policy Year: 2018
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