An economy enters a technical recession, with real GDP falling below its potential level. Which of the following correctly describes the fiscal policy mechanisms that will operate in response to this downturn?

Discretionary expansionary fiscal policy, such as raising the corporate tax rate, will stimulate private sector investment and shift the Aggregate Demand ( $A D$ ) curve to the right.

Automatic stabilizers, such as progressive income tax structures and unemployment welfare systems, will automatically increase the budget deficit, thereby dampening the reduction in aggregate demand ( $A D$ ).

A cyclical budget deficit will emerge as the government deliberately votes to increase infrastructure spending to close the negative output gap.

The Treasury will coordinate with the Central Bank to implement expansionary fiscal policy by decreasing the reserve requirements for commercial banks.

Discretionary expansionary fiscal policy, such as raising the corporate tax rate, will stimulate private sector investment and shift the Aggregate Demand ( $A D$ ) curve to the right.

A cyclical budget deficit will emerge as the government deliberately votes to increase infrastructure spending to close the negative output gap.

The Treasury will coordinate with the Central Bank to implement expansionary fiscal policy by decreasing the reserve requirements for commercial banks.

2.5 Fiscal policy and supply-side policies

Question 106

Markscheme

2.5 Fiscal policy and supply-side policies

Question 106

Markscheme

2.5 Fiscal policy and supply-side policies

Question 106

2.5 Fiscal policy and supply-side policies Questions

2.5 Fiscal policy and supply-side policies

Question 106

2.5 Fiscal policy and supply-side policies Questions