Question

How can the federal government use discretionary fiscal policy to stimulate the​ economy?An economy is experiencing a recessionary gap. The government can​ ______.

Answer 1

Can increase spending and/or lower taxes

Step-by-step explanation:

Consistent fiscal policy can be contractionary in times of economic warming or expansionary in times of recession.

Thus, the government may use the expansionary fiscal policy, which consists of two possibilities: lowering taxes to stimulate business and consumers, and increasing government spending as a stimulus for firms to produce. This is possible because the government is a big demander, so that its spending stimulates the economy, leading to increased production and employment in various sectors.