Question

Suppose the economy had been producing at potential output but is now experiencing a recession. Which of the following are discretionary fiscal policies that could bring the economy closer to potential output?

a. .Raising interest rates
b. A tax increase
c. Additional spending on national park facilities
d. A tax cut

Answer 1

Answer: c. Additional spending on national park facilities

d. A tax cut

Step-by-step explanation:

Recession is a contraction in the business cycle. During recession, there is a decline in the economic activity as aggregate demand will be reduced and spending by households also reduces.

The discretionary fiscal policies that could bring the economy closer to potential output is tax cut and an additional spending on national park facilities