Sia
Question
Statistics
Posted 9 months ago
The economy of Mithrim is experiencing a severe recession. As a result, the government is conducting expansionary fiscal policy. The central bank of Mithrim is considering expansionary monetary policy to aid in the recovery efforts.
Which of the following is an example of a monetary policy action that would work with the expansionary fiscal policy to close the output gap?
Choose 1 answer:
A Open market purchases
(B) Increasing the discount rate
(C) Increasing government spending
(D) Selling bonds
(E) Increase taxes
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Answer from Sia
Posted 9 months ago
Solution by Steps
step 1
To determine the appropriate monetary policy action that complements expansionary fiscal policy, we need to identify actions that increase the money supply and lower interest rates
step 2
Open market purchases involve the central bank buying government securities, which increases the money supply and lowers interest rates
step 3
Increasing the discount rate and selling bonds are contractionary policies, which would not aid in recovery. Increasing government spending and taxes are fiscal policies, not monetary policies
A
Key Concept
Monetary Policy Action
Explanation
Open market purchases increase the money supply and lower interest rates, aiding in economic recovery during a recession.
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