Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased government spending and lower interest rates
B
Higher taxes and increased interest rates
C
Decreased government spending and maintaining high interest rates
D
Increased taxes and decreased government spending
Understanding the Answer
Let's break down why this is correct
Answer
During a recession, the government and central bank can work together to boost the economy using expansionary fiscal and monetary policies. Expansionary fiscal policy involves increasing government spending or cutting taxes, which puts more money in people's hands and encourages them to spend. For example, if the government builds new roads, it creates jobs and allows workers to earn income that they will spend on goods and services. On the other hand, expansionary monetary policy involves lowering interest rates, making it cheaper for people and businesses to borrow money. When both policies are used together, they can effectively stimulate economic activity and help the economy recover more quickly.
Detailed Explanation
When the government spends more money, it creates jobs and helps businesses. Other options are incorrect because Higher taxes take money away from people and businesses; Cutting government spending means fewer jobs and services.
Key Concepts
Expansionary Fiscal Policy
Expansionary Monetary Policy
Aggregate Demand
Topic
Expansionary Fiscal and Monetary Policies
Difficulty
medium level question
Cognitive Level
understand
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