Using monetary policy to address a recessionary gap caused by a supply shock involves _____ to _____.
A) decreasing the money supply; lower the aggregate price level
B) increasing interest rates; decrease investment spending
C) decreasing interest rates; lower the aggregate price level
D) increasing the money supply; lower the unemployment rate

Question

Quizplus · Accepted Answer

Increasing the money supply during a recessionary gap can help lower the unemployment rate by stimulating economic activity. This is because more money in the economy can lead to increased spending and investment, which can boost demand for goods and services, thereby encouraging businesses to hire more workers.

Using Monetary Policy to Address a Recessionary Gap Caused by a Supply