A. Sometimes in order to stimulate more consumer spending, the federal governmen

Question

A. Sometimes in order to stimulate more consumer spending, the federal government will compel banks to relax lending standards for a time to entice more people and more business organizations to take out more loans than they would normally do under more restrictive standards.

B. Is the relaxing of lending standards a wise policy to implement from time-to-time, or is the risk to the overall economy too great to make use of such a policy? Explain in detail why or why not, and also keep in mind that such a relaxed standards policy played a significant role in the economic troubles the country endured primarily in 2007-2008.


C. Since business taxes increase the cost of doing business, and these lead to higher consumer prices and fewer investments, would both business organizations and consumers benefit from lower business taxes, or would only business organizations benefit? Explain.

Explanation / Answer

A. When economy is under recession or slowdown occurs in economy then government is under pressure to revive growth. There are two ways of reviving growth one is through increased government spending and other is through increased money supply. Since government budget is often under strain therefore the only way to revive economy is through increased money supply.

Government often ask federal banks to soften their stance and reduce the lending rates . Reduced rate will spur growth by reviving investment , increased consumer demand boasting employment , output and income level in economy.

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