The macro policy to keep recessions short and mild is:

Question

A. A mix of contractionary monetary policy and contractionary fiscal policy to increase demand to induce businesses to increase their production and employment.

B. A mix of contractionary monetary policy and contractionary fiscal policy to decrease demand to induce businesses to increase their production and employment.
C. A mix of expansionary monetary policy and expansionary fiscal policy to increase demand to induce businesses to increase their production and employment.
D. A mix of expansionary monetary policy and contractionary fiscal policy to decrease demand to induce businesses to increase their production and employment.
E. A mix of contractionary monetary policy and expansionary fiscal policy to increase demand to induce businesses to increase their production and employment.

Answer 1

The correct answer is C), during a recession output falls below potential. Increasing government spending or increasing the money supply will cause output to increase by shifting aggregate demand down and to the right taking the economy back toward the long-run potential demand. Expanding government spending is known as expansionary fiscal policy while increasing the money supply is known as expansionary monetary policy, the answer is C.