If the economy were encountering a severe recession, proper monetary and fiscal policies would call for
A)selling government securities, raising the reserve ratio, lowering the discount rate, increasing interest paid on reserves held at Fed banks, and a budgetary surplus.
B)buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.
C)buying government securities, raising the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary surplus.
D)buying government securities, reducing the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

Question

Quizplus · Accepted Answer

Buying government securities increases the money supply, reducing the reserve ratio and discount rate makes it easier for banks to lend money, reducing interest paid on reserves held at Fed banks makes it less attractive for banks to hold reserves, and a budgetary deficit increases government spending. All of these measures are expansionary and would help to stimulate the economy during a recession.

If the Economy Were Encountering a Severe Recession, Proper Monetary