If the economy were in a recession,which of the following policies would a person who favors an active approach to policy be most likely to support?
A)The economy should be left to cure itself without government intervention.
B)The Fed should sell U.S.government securities in its open-market operations.
C)The Fed should raise the discount rate.
D)Government lower tax rates.
E)The Fed should raise the required reserve ratio.

Question

Quizplus · Accepted Answer

A person who favors an active approach to policy would support government intervention to stimulate the economy during a recession. The most effective policy in this situation would be to lower tax rates to increase consumer spending and stimulate business investment. Options A, B, and E involve actions by the Federal Reserve, which may have some effect on the economy but are not as direct as fiscal policy actions such as tax cuts. Option C involves raising the discount rate, which may discourage borrowing and investment and would likely exacerbate a recession. Therefore, the best choice would be option D, lowering tax rates.

If the Economy Were in a Recession,which of the Following