Expansionary fiscal policies are most appropriate when the economy is experiencing: a. A recessionary gap. b.An inflationary gap. c. A short-run equilibrium. d. A long-run equilibrium.
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Expansionary fiscal policies are most appropriate when the economy is experiencing:
a. a recessionary gap.
During a recessionary gap, the actual output of the economy is below its potential output, leading to high unemployment and underutilization of resources. Expansionary fiscal policies, such as increased government spending or decreased taxes, aim to stimulate aggregate demand, boost economic activity and move the economy closer to its full potential by closing the gap between actual and potential output.