Multiple Choice
Herbert Hoover's solution to easing the Great Depression was primarily to:
99
views
19. Fiscal Policy
Introduction to Fiscal Policy
Multiple Choice
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:
A
government implements policies to decrease the money supply.
B
government increases spending or decreases taxes to boost aggregate demand.
C
central bank raises interest rates to encourage saving.
D
government reduces spending and increases taxes to lower aggregate demand.
Verified step by step guidance1
Step 1: Understand the context of the problem, which is a recession—a period of declining economic activity and falling GDP.
Step 2: Recall that expansionary fiscal policy aims to increase aggregate demand to stimulate economic growth during a recession.
Step 3: Identify the tools of expansionary fiscal policy, which include increasing government spending and/or decreasing taxes to put more money into consumers' hands.
Step 4: Recognize that increasing government spending directly raises aggregate demand by increasing overall expenditure in the economy.
Step 5: Understand that decreasing taxes increases disposable income for households, encouraging higher consumption and thus boosting aggregate demand and GDP.
Related Videos
Related Practice
