Question

Country X's economy is in recession. Which of the following combinations of fiscal and monetary policy actions would move the economy toward full employment in the short run?

Answer 1

Country X can puruse cheap monetary policy with deficit fiscal policy to generate full employment in short run.

Explanation:

Recession can be understood as a period of extended reduced demand accompanied by the retrenchment of the workforce as a cost-cutting measure. Recession can be handled by an adequate mix of monetary and fiscal policy measure-

Monetary measure- Cheap monetary measure must be pursued by the Country X. This includes low repo rate, cheap loans to employment generating avenues, business establishments etc.

Fiscal policy- Government of the country X should indulge in deficit financing, borrowing from international institutions, providing tax breaks, tax credits to let the firms run in full swing and generate employment.