Explanation Fiscal policy is the policy of the government regarding the government revenue and expenditures. The revenues include the taxes and the expenditures include the transfer payments and other government spending in the economy. The fiscal policy could be either expansionary or contractionary. The fiscal policy turns out to be expansionary during the recessions and contractionary during the inflations. Option (a): The fiscal policy of the government during the recession is expansionary in nature. The recession is the period where the unemployment is higher and the Aggregate demand of the economy is lower. Thus, through the expansionary fiscal policies of decreased taxes and the increased government spending increase the money supply to people, which will increase the aggregate demand of the economy. Thus, the unemployment compensation payments rise during the recession and thus it reduces the severity of the recession. This means that option 'a' is the correct answer. Option (b): When the government increases the government spending, it increases the aggregate demand of the economy because it increases the disposable income of the economy. When the aggregate demand increases in the economy, it reduces the severity of the recession and not increases as indicated by the option...

The implication of the unemployment compensation payments.

Macroeconomics for Today

10th Edition

ISBN: 9780357161494

Author: Irvin B. Tucker

Publisher: Cengage Learning US

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Question

Chapter 11, Problem 12SQ

To determine