22. Supporters of using government expenditures to respond to recession (Points
ID: 1256799 • Letter: 2
Question
22. Supporters of using government expenditures to respond to recession (Points : 2) argue that monetary policy should be used first. An increase in the money supply will reduce interest rates.
argue that monetary policy should be used first. An increase in the money supply will raise interest rates.
argue that monetary policy should be used only after fiscal policy has been used. An increase in the money supply will reduce interest rates.
argue that monetary policy should be used only after fiscal policy has been used. An increase in the money supply will raise interest rates.
increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.
decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending.
decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.
Explanation / Answer
(22) Option (c)
They contend that expansionary fiscal policy should be used, to boost aggregate demand to the fullest extent possible. Expansionary Monetary policy should be used after that, because higher money supply will lower interest rate and lead to further increase in consumption and investment.
(23) Option (b)
To increase output, Fed can increase money supply. But higher money supply increases price, so the price level moves away from its previous level.
(24) No graph is provided.
(25) Option (c)
In short run, fiscal policy changes aggregate demand. But in long run, it affects saving, investment and growth.
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