Monetary policy can best cure a recession by:
A) Reducing interest rate,which shifts aggregate supply to the left.
B) Reducing interest rate,which shifts aggregate demand to the right.
C) Raising interest rate,which shifts aggregate supply to the right.
D) Raising interest rate,which shifts aggregate demand to the left.

Question

Quizplus · Accepted Answer

When the central bank reduces interest rates through monetary policy, it makes it cheaper for businesses and consumers to borrow money. This leads to an increase in spending which in turn shifts aggregate demand to the right, ultimately helping to cure a recession. On the other hand, raising interest rates has the opposite effect, decreasing spending and shifting aggregate demand to the left, which is not the ideal situation to cure a recession.

Monetary Policy Can Best Cure a Recession By