Suppose the U.S. economy finds itself in a recession after a recent financial cr

Question

Suppose the U.S. economy finds itself in a recession after a recent financial crisis and series of unfortunate international events. If the Federal Reserve wants to stabilize the economy, what should it do?

Decrease the money supply to increase interest rates and shift Aggregate Demand to the left.

B:Decrease the money supply to increase interest rates and shift Aggregate Demand to the right

C: Increase the money supply to increase interest rates and shift Aggregate Demand to the right.

D:Decrease taxes and decrease government spending.

Decrease the money supply to increase interest rates and shift Aggregate Demand to the left.

B:Decrease the money supply to increase interest rates and shift Aggregate Demand to the right

C: Increase the money supply to increase interest rates and shift Aggregate Demand to the right.

D:Decrease taxes and decrease government spending.

Explanation / Answer

Suppose the U.S. economy finds itself in a recession after a recent financial crisis and series of unfortunate international events. If the government wants to stabilize the economy by employing fiscal policy, which of the following policy combinations would do the most to shift AD in the right direction?

A:Increase taxes and increase government spending.

Suppose the U.S. economy finds itself in a recession after a recent financial crisis and series of unfortunate international events. If the Federal Reserve wants to stabilize the economy, what should it do?

B:Decrease the money supply to increase interest rates and shift Aggregate Demand to the right

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