Government Expenditure 2.2.4

Question 1

what does the government do in time of a recession (trade cycle)

Answer 1

it increases its government spending in order to increase demand to reduce unemployment. GS automatically increases in this cycle as they have to spend on unemployment benefits.

Question 2

what does the government do in time of a boom (trade cycle)

Answer 2

the government will decrease its spending so that it could reduce inflation

Question 3

fiscal policy

Answer 3

this is when the government changes the level of taxation and government spending in order to influence AD.