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VARVARA [1.3K]
2 years ago
15

Appleville is a village that specializes in all forms of apple products. Suppose that each winter, when no apples are being prod

uced, aggregate output falls below the long-run equilibrium output level. What type of fiscal policy might be most effective in correcting this problem?
reducing taxes in order to decrease aggregate demand


decreasing government spending in order to increase aggregate demand


increasing government spending in order to increase aggregate demand


increasing taxes in order to increase aggregate demand
Social Studies
1 answer:
AURORKA [14]2 years ago
8 0
Increasing government spending in order to increase aggregate demand

To Address the downturn, the government can employ an expansionary fiscal policy either by increasing spending or reducing taxes. The result would be an expansion of aggregate demand, moving the economy back toward the long-run equilibrium output.
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That sounds like the old Keynesian idea made popular during Franklin Roosevelt’s New Deal: Cut taxes and increase government spending to “prime the pump” during a recession; raise taxes and reduce spending to slow down an “overheated” economy. Keynesianism seemed to have been finally laid to rest in the 1980s when President Ronald Reagan argued for a tax cut on supply‐​side grounds, and even liberal economists now agree that such fine‐​tuning has little effect on the economy.

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