Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that
A)raise G to eliminate a recessionary gap and lower taxes to eliminate an inflationary gap.
B)raise G to eliminate a recessionary gap and raise taxes to eliminate an inflationary gap.
C)reduce taxes to eliminate a recessionary gap and raise G to eliminate an inflationary gap.
D)reduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap.

Question

Quizplus · Accepted Answer

Policy makers and citizens who want to expand the size of the government sector would prefer stabilization policies that involve increasing government spending (G). To eliminate a recessionary gap during a recession or downturn, they would want to raise government spending (G) to stimulate demand and boost economic activity. However, to prevent inflationary pressures from building up during periods of strong economic growth, they would need to raise taxes to reduce aggregate demand and prevent prices from rising too quickly. Therefore, option B of raising G to eliminate a recessionary gap and raising taxes to eliminate an inflationary gap would be the best choice for those who favor expanding the government sector.

Policy Makers and Citizens Who Want to Expand the Size