Question

The economy of country Rumblen was hit by a banking crisis which has led to a recission. Jason Wallace, a real estate agent, says that the economy will recover soon because the government is taking various measures to counter the recession. According to him, the flow of credit will soon return to pre-crisis levels. His wife Anna Wallace disagrees with him. She says that the situation may not improve soon, given the substantial increase in unemployment.
Which of the following, if true, will weaken Anna's claim that the situation is not likely to improve in the short term?
A. The required reserve ratio n Rumblen has remained unchanged over the last two years.
B. Prior to the current crisis, Rumblen enjoyed a decade-long economic expansion.
C. The intrest rate on discount loans issued by Rumblen's central bank was recently decreased.
D. Inflation in the economy declined to 4 percent this year.
E. Leading economists in the country feel that the central bank should have more autonomy.

Answer 1

Answer:

C)  The interest rate on discount loans issued by Rumblen's central bank was recently decreased.

Explanation:

When a central bank lowers its interest rates, it is carrying on an expansionary monetary policy. By lowering its interest rates, the central bank is increasing the money supply and increasing aggregate demand. Expansionary monetary policies generally stimulate an economy.