Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
These actions will stimulate economic activity and help reduce unemployment by increasing aggregate demand.
B
These actions may lead to higher inflation without affecting unemployment.
C
Increasing spending and cutting taxes will have no effect since consumers will save the extra money instead of spending it.
D
The government's actions will create a budget deficit that will worsen the recession.
Understanding the Answer
Let's break down why this is correct
Answer
When a local government increases spending on public projects and cuts taxes, it aims to boost the economy during a recession. By spending more on projects like building roads or schools, the government creates jobs, which helps people earn money and spend it in their communities. Cutting taxes puts more money in citizens' pockets, allowing them to spend more on goods and services. This increased spending can lead to higher demand for products, encouraging businesses to hire more workers and invest in their operations. For example, if local workers are hired to build a new park, they will earn wages that they can use to buy food, clothing, or entertainment, thus stimulating the local economy.
Detailed Explanation
When the government spends more and cuts taxes, people have more money to spend. Other options are incorrect because Some might think that spending more will only raise prices, not help jobs; It's a common belief that people will just save extra money instead of spending it.
Key Concepts
Fiscal Policy
Recession
Aggregate Demand
Topic
Recession and Fiscal Policy Actions
Difficulty
easy level question
Cognitive Level
understand
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