Type your response in the box.
Read the following scenarios, and then answer the question that follows.
Scenario 1
The economy has been in a downfall for two years. The number of people who are cyclically unemployed has
dramatically increased as output measured by GDP has fallen. Consumers and businesses are buying less,
causing output to fall even more, which increases unemployment. The government invests millions of dollars in
infrastructure projects. As a result, the unemployment rate starts to decrease and the GDP begins to increase.
Scenario 2
After a period of economic growth, consumers are seeing sharply increased prices on nearly all goods and
services. Unemployment is at its natural rate, with millions of people working overtime for several weeks, which
increases output sharply and quickly. The government decides to slightly increase tax rates. A year later, prices
and output fall and stabilize.
What is the difference in how the government reacted in these two situations?