Final answer:
Expansionary fiscal policy, indicated by increased government spending to counteract a recession, is aimed at boosting aggregate demand to help the economy reach its potential GDP. It is the most appropriate response to combat the negative effects of a recession.
Step-by-step explanation:
Expansionary vs. Contractionary Fiscal Policy
If Congress passes legislation to increase government spending to counter the effects of a recession, this would be an example of B. Expansionary fiscal policy. This type of policy aims to increase the level of aggregate demand through increases in government spending or reductions in taxes. It is most appropriate when an economy is in a recession and is producing below its potential Gross Domestic Product (GDP).
On the other hand, contractionary fiscal policy is employed when the economy is producing above its potential GDP, with the aim to decrease aggregate demand by cutting government spending or increasing taxes. This helps reduce inflationary pressures within the economy. However, during a recession, what is needed is a boost in economic activity to mitigate unemployment and underproduction, hence the preference for expansionary fiscal policy.