Question

If in response to a spreading recession, the President calls for an increase in investment spending by businesses, which of the following would be the best policy mix to accomplish this goal without increasing the output level?

Answer 1

Answer:

The expansionary monetary policy

Explanation:

To fix these problems without increasing the output level is expansionary policy kind of monetary policy. As you know, monetary policies are performed to affect the economy of a country. Expansionary moves of monetary policy are intended to raise the money or currency supply and include:

1) The decreases in the discount rate

2) Purchases of government securities

3) Reductions in the reserve ratio

The central bank frequently utilize a policy to stimulate the economy during or predicted recession periods. Increasing or expanding the money supply will have a result of lower interest rates and borrowing costs, with the exact target to boost consumption and investment in businesses. Additionally, when interest rates are already at high level, the central bank of the country will intend to lower the discount rate.  Following this option, corporations and consumers will be able to borrow much more cheaply. The declining interest rate will make appear less attractive government bonds and savings accounts and encourage investors and savers toward risk assets.