Which of the following should be increased during a recession?
A) Real interest rates
B) Government spending
C) Income taxes
D) Nominal interest rates

Question

Quizplus · Accepted Answer

During a recession, the economy faces a slowdown, and there is low demand in the market. In such a scenario, the government should increase its spending to stimulate the economy. Government spending creates jobs and income, which helps in increasing demand in the market. Increasing government spending also helps in kickstarting private investment, which can help revive the economy. Therefore, increasing government spending is crucial during a recession. Conversely, increasing income taxes or real interest rates can reduce consumer spending, which can further hurt the economy. Increasing nominal interest rates can also exacerbate the recession by making credit expensive, which can deter borrowing and investment.

Which of the Following Should Be Increased During a Recession