Question

Afiscal policy action designed to bring the economy out of a recession would be to: reduce the size of the budget deficit. increase taxes. decrease transfer payments, increase government purchases.

Answer 1

Answer:- The correct option is (D).

In most cases of recession government tries to implement expansionary fiscal policy to mitigate the effects of recession and increase the economic activities.

A recession is characterized by low growth rate,less profits and incomes, bankruptcy and less public spending etc . Hence during the expansionary fiscal policy government increases its spending on goods and services in order to make aggregate demand by giving money to people to spend and to come out of recession. We can't increases taxes during recession as public don't wish to spend if the prices continue to soar up . Government purchases help the economy to recover it of of the economic stagnation. Aggregate demand increases so does the aggregate supply as people have enough money received through transfer payments by government to create sustainability. Cutting taxes can help people spend their money and help the economy running .. Usually transfer payments increase as part of government spending during a recession as they help people accessible to basic necessities.Reducing budget deficit try to implies imposibg more taxes and less government spending which may not work out during a recession . In either way it is helpful if government spends more during a recession to incur growth to come out of recession.

Thank you