Sia
Question
Statistics
Posted 4 months ago
Which of the following combinations of monetary policy and fiscal policy would be the appropriate response to a severe recession?
Choose 1 answer:
(A) Buy bonds; decrease government spending
(B) Increase discount rate; decrease government spending
(C) Raise taxes; increase government spending
(D) Buy bonds; decrease taxes
() Sell bonds; decrease the reserve requirement
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Answer from Sia
Posted 4 months ago
Solution by Steps
step 1
Identify the economic situation: A severe recession requires policies that stimulate economic activity
step 2
Analyze monetary policy options: Buying bonds typically lowers interest rates and increases the money supply, which can stimulate economic growth
step 3
Analyze fiscal policy options: Decreasing taxes can increase disposable income for consumers and businesses, leading to increased spending and investment
step 4
Evaluate the policy combinations: The combination of policies that both stimulate economic growth and increase spending would be the most appropriate response to a severe recession
Answer
D
Key Concept
Appropriate policy response to a severe recession
Explanation
In a severe recession, the appropriate response is to use expansionary monetary and fiscal policies to stimulate the economy. This involves increasing the money supply and reducing taxes to encourage spending and investment.
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