An economy is experiencing a prolonged period of sluggish economic growth and rising cyclical unemployment. If the government decides to use discretionary fiscal policy to stimulate aggregate demand and close the deflationary gap, which of the following measures is it most likely to adopt?
A reduction in the standard rate of Value Added Tax (VAT) combined with increased capital expenditure on public infrastructure.
A reduction in the central bank's base interest rate combined with an expansion of its quantitative easing programme.
Allowing automatic stabilisers to operate freely while cutting public services to maintain a balanced budget.
A reduction in the marginal rate of income tax alongside an active depreciation of the domestic currency.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.