If firms were faced with greater uncertainty because of concerns that the U.S. will place tariffs on Canadian-made goods, they may start to decrease their purchases of new machinery. What response might someone who advocated for "lean against the wind" policies support?
A) decrease the money supply
B) increase taxes
C) decrease government expenditures
D) decrease interest rates

Question

Quizplus · Accepted Answer

Someone who advocates for "lean against the wind" policies would aim to stabilize the economy by using monetary policy tools to offset any potential negative effects of external shocks or uncertainty. Decreasing interest rates is a traditional tool used in this type of policy, as it can encourage firms to invest more in capital expenditures and stimulate economic growth. On the other hand, decreasing the money supply, increasing taxes, or decreasing government expenditures could all have a contractionary effect on the economy and potentially worsen the effects of uncertainty or external shocks.

If Firms Were Faced with Greater Uncertainty Because of Concerns