📚 Learning Guide
Fiscal Policy in Recessions
easy

What is the primary purpose of using fiscal policy during a recession, particularly regarding the multiplier effect?

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Choose the Best Answer

A

To increase government revenue through higher taxes

B

To stimulate economic growth by increasing public spending

C

To decrease inflation rates

D

To reduce the national debt

Understanding the Answer

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Answer

The primary purpose of using fiscal policy during a recession is to stimulate economic activity and encourage growth. Fiscal policy involves the government changing its spending and tax policies to influence the economy. When the government increases spending, it puts more money into the hands of businesses and consumers, which can lead to job creation and increased demand for goods and services. This is where the multiplier effect comes in; for example, if the government spends money on building a new school, it creates jobs for construction workers, who then spend their earnings on local businesses, further boosting the economy. By using fiscal policy effectively, the government aims to shorten the recession and help the economy recover more quickly.

Detailed Explanation

The main goal during a recession is to boost the economy. Other options are incorrect because Some think raising taxes helps the government; It's a common belief that fiscal policy is mainly for lowering prices.

Key Concepts

multiplier effect
Topic

Fiscal Policy in Recessions

Difficulty

easy level question

Cognitive Level

understand

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