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When the economy is in recession, which of the following fiscal policy tools can be used...

When the economy is in recession, which of the following fiscal policy tools can be used to stimulate the economy?

1.Reducing inefficient employment of resources

2.Increased government purchases

3.Increased imports

4.Lower interest rates

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Answer #1

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Answer: 2.Increased government purchases

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When the economy is in recession then the government can pursue an expansionary fiscal policy or the FED (central bank) can pursue expansionary monetary policy.

Tools for expansionary fiscal policy:

Increase government spending or decrease the tax rate.

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Tools for expansionary monetary policy:

lower the discount rate or the reserve requirement, or buy securities in the Open market operation (OMO)

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