In order to shorten a recession when the economy is producing below full employment, the monetary authority could:
A) expand the money supply.
B) raise taxes in order to close the budget deficit.
C) contract the money supply.
D) decrease government spending.

Question

Quizplus · Accepted Answer

By expanding the money supply, the monetary authority can inject more money into the economy, leading to an increase in aggregate demand and ultimately helping firms to increase production and employment levels. This can help to shorten a recession and move the economy closer to full employment. Raising taxes or decreasing government spending, on the other hand, would have the opposite effect, reducing aggregate demand and potentially making the recession worse. Contracting the money supply would also reduce demand, making it a less effective response to a recession.

In Order to Shorten a Recession When the Economy Is