Question

5 multiple choice 1 point
which fiscal policy tool would be used if the economy were in a trough?
(a/b)
increase individual tax rate
sell bonds through open market operations
increase government spending
decrease reserve requirement

Explanation:

An economic trough means low GDP, high unemployment, and a stagnant economy. Expansionary fiscal policy is needed to stimulate growth.

• Increasing individual tax rates is contractionary, reducing consumer spending.
• Selling bonds and changing reserve requirements are monetary policy tools, not fiscal policy.
• Increasing government spending is expansionary fiscal policy: it injects money into the economy, creates jobs, and boosts aggregate demand to pull the economy out of the trough.

Answer:

increase government spending