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vivado [14]
3 years ago
7

Two years​ back, the Republic of​ Terbia, a developed​ economy, experienced a massive boom in the information technology​ (IT) i

ndustry. The rapid expansion of credit to the firms in this industry resulted in a significant increase in employment and prices in the economy.​ However, due to overvaluation and speculation in the​ market, stock prices of these firms fell sharply. IT being one of the most important​ sectors, this downturn affected the economy​ adversely, leading to a recession. Alicia​ White, an industry​ expert, suggests that expansionary monetary policy by the central bank is necessary to induce greater spending in the economy.​ However, Jaime​ Russell, a teacher at a community​ college, disagrees. According to​ him, increasing the supply of money would not help. The only possible impact of a fall in the interest rate would be an increase in aggregate supply.​ This, in​ turn, will reduce prices and profits further.​ Instead, the government should use expansionary fiscal policies to boost aggregate demand. Alicia and Jaime are most likely to have a difference of opinion on which of the​ following?
A. Falling prices in Terbia could indicate a slump in aggregate demand.
B. An expansionary fiscal policy can lead to an increase in prices in Terbia.
C. Expansionary monetary policy is more effective under a flexible exchange rate system.
D. Consumers in Terbia are confident that the economy will turn around in the near future.
E. Cyclical unemployment in Terbia has increased in recent months.

Business
1 answer:
lubasha [3.4K]3 years ago
4 0

Answer:

D. Consumers in Terbia are confident that the economy will turn around in the near future.

Explanation:

Please consider the information provided by you in the exercise. If you have any question please write me back. Please take a look to the image attached.

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