Which of the following fiscal policy combinations has the federal government most often followed to stimulate economic activity when the economy is in a severe recession?
The answer given, to decrease taxes and increase spending is the one typically pursued (incorrectly in one aspect, as you correctly -- but irrelevantly -- point out.)
Egad. You’re right. Dang it.
That is, IS it an historical question? I honestly don't know the answer to the question; but two things cause me to question whether it is an historical question, or whether it is a question of which fiscal policy will work?
(1)Keynesian economics has held sway for over half a century (suggesting that govt would pursue the wrong course); and,
(2)the creators of the test appear to be conservative (suggesting that they correctly believe the "correct" answer would be the appropriate course).
So, did the test-makers slip by stating that the appropriate fiscal policy was the one actually pursued -- historically? Or, did they research all past "severe recessions" (how defined?) and match them to actual historical government action?
I.e., is it the correct answer (historically) or is it just the right answer (policy-wise)? I have my doubts.