Question

To help fight a recession, the government could:

• A. lower interest rates by decreasing the cash rate.
• B. decrease taxes to increase aggregate demand.
• C. conduct contractionary fiscal policy by raising taxes.
• D. decrease government spending to balance the budget

Answer 1

The correct option is B

decrease taxes to increase aggregate demand.

During a recession, the government should use expansionary fiscal policy. This could be either by raising government spending or by lowering tax rates.