Which of the following policies would be most helpful in addressing a recession?

• A. Raising interest rates to reduce inflation
• B. Reducing unemployment benefits
• C. Increasing government spending on infrastructure projects
• D. Increasing taxes on consumer goods

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the economic context of a recession, which is characterized by a decline in economic activity, higher unemployment, and reduced consumer spending.
2. Step 2: Recognize that during a recession, the goal of policy is to stimulate aggregate demand to boost economic growth and reduce unemployment.
3. Step 3: Analyze each policy option in terms of its effect on aggregate demand: Raising interest rates tends to reduce spending and investment, which can worsen a recession; reducing unemployment benefits decreases income for unemployed individuals, lowering consumption; increasing taxes on consumer goods reduces disposable income and consumption.
4. Step 4: Identify that increasing government spending on infrastructure projects directly increases aggregate demand by creating jobs and stimulating economic activity, which helps counteract the recession.
5. Step 5: Conclude that among the options, increasing government spending on infrastructure is the most effective policy to address a recession because it injects money into the economy and promotes growth.