📚 Learning Guide
Fiscal Policy in Recessions
easy

What is the primary purpose of fiscal policy during a recession?

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Learning Path

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Choose the Best Answer

A

To increase government spending and reduce taxes

B

To decrease government spending and increase taxes

C

To maintain the current level of spending and taxes

D

To increase interest rates

Understanding the Answer

Let's break down why this is correct

Answer

The primary purpose of fiscal policy during a recession is to stimulate the economy and help it recover. When the economy is in a downturn, people tend to spend less money, which can lead to businesses losing income and laying off workers. To counter this, the government can increase spending on projects like building roads or schools, which creates jobs and puts money into people's hands. For example, if the government decides to build a new highway, it not only provides jobs for construction workers but also helps local businesses as more people travel and spend money in the area. By increasing spending or cutting taxes, fiscal policy aims to boost overall demand in the economy and encourage growth.

Detailed Explanation

During a recession, people spend less money. Other options are incorrect because Some might think cutting spending and raising taxes will help; Keeping spending and taxes the same might seem safe.

Key Concepts

fiscal policy
Topic

Fiscal Policy in Recessions

Difficulty

easy level question

Cognitive Level

understand

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