What role does fiscal stimulus play during a recession regarding aggregate demand?

Fiscal stimulus is a crucial tool for managing economic downturns, specifically during a recession. Its primary purpose is to boost aggregate demand, which is the total demand for goods and services within an economy at a given overall price level and in a specified time period.

During a recession, economic activity tends to decline, leading to increased unemployment, decreased consumer spending, and reduced business investment. To counteract these effects, fiscal stimulus typically involves government actions such as increasing public spending or cutting taxes. By injecting money into the economy, the government encourages consumer spending and investment, which can help revive economic activity and promote recovery.

This increase in aggregate demand is essential because it helps lift the overall economic output, minimize job losses, and restore consumer and business confidence. Thus, the role of fiscal stimulus during a recession is to actively enhance aggregate demand, making option C the accurate choice.