Question

Under which conditions does the government use expansionary and contractionary policy?

a) High, high.
b) Low, high.
c) High, low.
d) Low, low.

Answer 1

In response to a recession, the government would use expansionary fiscal policy. In response to high inflation, the government would use contractionary fiscal policy. Correct option is c)

Step-by-step explanation:

In response to a recession, the government would typically use expansionary fiscal policy. This involves increasing government spending and/or reducing taxes to stimulate economic activity and increase aggregate demand. The goal is to boost consumption and investment, which can help to pull the economy out of a recession.

On the other hand, in response to high inflation, the government would typically use contractionary fiscal policy. This involves reducing government spending and/or increasing taxes to reduce aggregate demand and control inflation. The goal is to decrease consumption and investment, which can help to reduce inflationary pressures in the economy.