📚 Learning Guide
Fiscal Policy in Recessions
medium

Increasing government spending during a recession will always lead to higher inflation, regardless of the economic context.

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

True

B

False

Understanding the Answer

Let's break down why this is correct

Answer

Increasing government spending during a recession does not always lead to higher inflation, as the outcome depends on various factors in the economy. During a recession, there is often high unemployment and unused resources, which means that the economy can absorb more spending without causing prices to rise. For example, if the government invests in infrastructure, it can create jobs and stimulate demand without immediately increasing prices because there is still a lot of spare capacity. However, if the economy is already near full capacity, additional spending may lead to inflation as demand outpaces supply. So, while increased spending can lead to inflation, it is not a guaranteed outcome and depends on the specific economic conditions at the time.

Detailed Explanation

It's not true that more government spending always causes inflation. Other options are incorrect because Many think that any extra spending will always push prices up.

Key Concepts

Fiscal Policy
Economic Recession
Aggregate Demand
Topic

Fiscal Policy in Recessions

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.