In an economic downturn, what traditional fiscal policy action is recommended for the country of Econia?

In the context of an economic downturn, increasing government spending and cutting taxes is a traditional fiscal policy action designed to stimulate economic activity. When the economy is struggling, demand for goods and services typically decreases, which can lead to higher unemployment and lower overall production. By increasing government spending, the government directly injects money into the economy, funding projects and services that create jobs and increase demand.

Cutting taxes is another effective strategy as it leaves consumers and businesses with more disposable income. When individuals and businesses have more money, they are likely to spend or invest it, further stimulating demand in the economy. This combination of increased spending and reduced taxes can help to bridge the gap during an economic downturn and promote recovery by boosting aggregate demand.

The other options suggest actions that would likely exacerbate the downturn rather than alleviate it. Increasing taxes and reducing government spending would decrease the amount of money circulating in the economy, thus further suppressing demand. Eliminating all government spending would eliminate vital services and investments that can foster economic growth, while decreasing the money supply generally restricts lending and spending, which can lead to deeper economic contraction.