[PENANCE]

I had a small problem with this question.

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.

[rlmorel]

I believe historically it has been to cut taxes and increase spending...not that it is all that hard to guess, because they SURE as hell never decrease spending, so that made it a 50-50 choice!

[FredZarguna]

You are overthinking this. The question asks which has been done by the Federal government. The POV of the questioner is irrelevant to the answer, and it is not necessary to guess what they believe is the correct course of action. Correct or not, the Federal government has taken certain approaches.

[If you want to be very historically picky, prior to the advent of fiscal or tax policy as stimulus, the Federal government typically attempted both tight and loose monetary policies through the central bank to spur growth. But those historical alternative courses are not offered as answers in any combination, so you have to assume the only "historical" options are those since 1930. Coolidge did nothing -- was his recession "mild?" But in any event, doing nothing is not one of the answers offered, so you cannot make that choice either.]

[Talisker]

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?

This is the one I got wrong too, and it was because I missed that it was a historical question, rather than an economic one.

And here's the cynical Freeper reality check for it: If taxes are cut, where does the government get spending money? They borrow it from the Federal Reserve. So depressions can be argued to benefit the Fed by forcing an increase of the public debt (and many believe this is one of the reasons they "happen" in the first place).

So why even bother with a tinfoil hat, when such an economic benefit for the Fed is so obvious? Therefore, it's a historical question, if only because the Fed wouldn't have it any other way.