Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased aggregate demand leading to higher output
B
Decreased investment as businesses fear inflation
C
Higher taxes to offset government spending
D
No change in economic activity due to consumer skepticism
Understanding the Answer
Let's break down why this is correct
Answer
When a government increases spending during a recession, it aims to stimulate the economy by putting more money into circulation. This extra spending can lead to more jobs, as businesses may need to hire more workers to meet the increased demand for goods and services. For example, if the government invests in building new roads, construction workers will be employed, and they will have more money to spend in their communities. As people spend more, businesses can earn more profits, which might encourage them to invest and hire even more workers. Overall, this can help boost economic activity and reduce the effects of the recession.
Detailed Explanation
When the government spends more money, it puts cash into the economy. Other options are incorrect because Some might think that more spending will scare businesses into investing less; It's a common belief that the government must raise taxes to pay for spending.
Key Concepts
Fiscal Policy
Recessionary Gap
Aggregate Demand
Topic
Recession and Fiscal Policy Actions
Difficulty
medium level question
Cognitive Level
understand
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