When the Economy Is in a Recessionary Gap, the Government

question 78

Multiple Choice

When the economy is in a recessionary gap, the government can improve economic outcomes by:

• A) increasing taxes and aggregate spending via the multiplier.
• B) increasing the money supply, lowering the interest rate, increasing investment spending and consumption spending, and thus increasing aggregate demand.
• C) cutting government expenditure, decreasing investment spending and consumption spending, and thus increasing aggregate supply.
• D) increasing nominal wages, shifting the short run aggregate supply to the left and thus removing the recessionary gap.