Suppose the economy has been producing its potential, but it is now experiencing a recession. Which of the following is a discretionary fiscal policy that would bring the economy closer to its potential output? Check all that apply.

Question

1) A tax cut
2) A tax increase
3) The sale of bonds by the Fed
4) An additional $10 billion in spending on agricutural subsidies

Answer 1

1 3

Answer 2

1) and 2)