If the economy is producing at an output level below full employment, the government should _____ spending and _____ taxes.

Question

Quizplus · Accepted Answer

If the economy is producing at an output level below full employment, it means that there is a recession or an economic downturn. In this situation, the government should increase its spending to stimulate the economy and create jobs. This can be done through public investment in infrastructure projects, increasing transfer payments, and reducing taxes. By reducing taxes, the government can encourage consumers to spend more, which will increase aggregate demand and boost economic activity. Therefore, the best choice is to increase spending and decrease taxes, as in option C.

If the Economy Is Producing at an Output Level Below