An interesting aspect of the recession of 1990/91 was that
A)because of rising oil prices, the inflation rate did not fall
B)unemployment and inflation both increased sharply all through 1991
C)fiscal policy was highly restrictive and the Fed was very inactive
D)fiscal policy was immobilized due to a large budget deficit, while monetary policy did not work well due to credit rationing by banks
E)while the war against Iraq stimulated the economy, the Fed restricted money supply

Question

Quizplus · Accepted Answer

The large budget deficit immobilized fiscal policy, while credit rationing by banks limited the effectiveness of monetary policy. This made it difficult to combat the recession. Option A is incorrect because the inflation rate did fall, despite rising oil prices. Option B is incorrect because inflation did not increase sharply. Option C is incorrect because fiscal policy was actually very restrictive, while the Fed was relatively passive. Option E is incorrect because the war against Iraq did not actually stimulate the economy, and the Fed did not restrict money supply due to the war.

An Interesting Aspect of the Recession of 1990/91 Was That