Which fiscal policy tool is primarily used to counteract a recession?

Which fiscal policy tool is primarily used to counteract a recession?

• A. Raising taxes
• B. Decreasing government spending
• C. Increasing government spending
• D. Reducing public services

Answer: (C)

Increasing government spending is a key fiscal policy tool used to counteract a recession because it aims to stimulate economic activity. During a recession, consumer and business confidence typically decline, leading to reduced spending and investment. By increasing government spending, the government injects money into the economy, which can create jobs, increase demand for goods and services, and ultimately boost economic growth. When the government invests in infrastructure projects, public services, or economic stimulus programs, it not only creates immediate demand but also encourages private sector growth as the economy begins to recover. This increase in demand can help businesses expand, which can lead to higher employment levels and increased consumer spending, further stabilizing and growing the economy. The other available options—raising taxes, decreasing government spending, and reducing public services—would likely have the opposite effect, as they could lead to reduced disposable income for consumers and businesses, further contracting economic activity during a recession.

Increasing government spending is a key fiscal policy tool used to counteract a recession because it aims to stimulate economic activity. During a recession, consumer and business confidence typically decline, leading to reduced spending and investment. By increasing government spending, the government injects money into the economy, which can create jobs, increase demand for goods and services, and ultimately boost economic growth.

When the government invests in infrastructure projects, public services, or economic stimulus programs, it not only creates immediate demand but also encourages private sector growth as the economy begins to recover. This increase in demand can help businesses expand, which can lead to higher employment levels and increased consumer spending, further stabilizing and growing the economy.

The other available options—raising taxes, decreasing government spending, and reducing public services—would likely have the opposite effect, as they could lead to reduced disposable income for consumers and businesses, further contracting economic activity during a recession.