Suppose a country that's currently experiencing a recessionary gap wishes to produce at its potential output...

Suppose a country that's currently experiencing a recessionary gap wishes to produce at its potential output level. Holding everything else constant, identify which of the following policy initiatives would surely be counter-productive. (Choose all that apply)

		The government initiates policies that encourage private investment spending.
		The government lowers taxes but does not lower its spending.
		The government borrows money from the public and uses it to increase its own spending on infrastructure projects. A side effect of the increased borrowing is that interest rates rise. (On balance will the net effect of this policy surely be counter-productive?)
		The government increases taxes on consumers and corporations, but does not increase its own spending.
		The government authorizes new spending programs, but does not raise taxes to pay for the new spending.

Expert Solution

Rahul Sunny answered 2 years ago

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