If the economy is in a recession, in an effort to move the economy to the long-run equilibrium, the government could:
A) increase spending to increase aggregate demand.
B) decrease spending to decrease aggregate demand.
C) increase spending to decrease aggregate demand.
D) decrease spending to increase aggregate demand.

Question

Quizplus · Accepted Answer

During a recession, there is a decrease in aggregate demand, leading to lower output, employment, and prices. To move the economy towards the long-run equilibrium, the government can increase spending to increase aggregate demand, leading to an increase in output, employment, and prices. This is achieved through an increase in government spending on goods and services, or through transfer payments, such as unemployment benefits, which increase consumer spending. Thus, choice A is the best option to move the economy towards the long-run equilibrium during a recession.

If the Economy Is in a Recession, in an Effort