Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increasing government spending
B
Raising interest rates
C
Cutting transfer payments
D
Increasing taxes
Understanding the Answer
Let's break down why this is correct
Answer
In a recessionary gap, the economy is not producing enough goods and services, leading to high unemployment and low demand. One effective fiscal policy action to close this gap is increasing government spending. When the government spends more money on projects like building roads or schools, it creates jobs and puts money into people’s hands, which encourages them to spend more. For example, if the government invests in a new highway, workers are hired to build it, and these workers will then use their earnings to buy food, clothes, and other goods. This increase in spending helps boost the economy and can quickly reduce the recession's effects.
Detailed Explanation
When the government spends more money, it creates jobs and boosts demand. Other options are incorrect because Raising interest rates makes borrowing more expensive; Cutting transfer payments means less money for people who need it.
Key Concepts
Recessionary gap
Fiscal policy actions
Aggregate demand
Topic
Recession and Fiscal Policy Actions
Difficulty
hard level question
Cognitive Level
understand
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