To fight a recession, the Federal Reserve should conduct _____ monetary policy to _____ interest rates, which will shift the aggregate demand curve to the _____.

Question

Quizplus · Accepted Answer

When the economy is in a recession, the Federal Reserve should conduct expansionary monetary policy, which involves lowering interest rates. This will encourage borrowing and spending, which will increase aggregate demand and shift the aggregate demand curve to the right. Option D is the only choice that correctly identifies this policy and outcome. Option A is incorrect because expansionary monetary policy would lower, not raise, interest rates. Option B is incorrect because contractionary monetary policy, which involves raising interest rates, would further reduce aggregate demand and shift the curve to the left. Option C is incorrect because it also identifies contractionary monetary policy, which would not be effective in fighting a recession.

To Fight a Recession, the Federal Reserve Should Conduct _____