If a country is trying to recover from a recent recession,it is unlikely their government officials will decide to ________ because it would ________.
A)lower interest rates;decrease aggregate demand
B)raise interest rates;decrease aggregate demand
C)raise interest rates;increase aggregate demand
D)institute a tax cut;increase aggregate demand
E)increase taxes;increase aggregate demand

Question

Quizplus · Accepted Answer

When a country is recovering from a recent recession, the government officials are likely to adopt policies that promote economic growth. Raising interest rates will make borrowing more expensive, leading to a decrease in aggregate demand. This will help to prevent the economy from overheating and experiencing inflationary pressures, which could derail the recovery. Lowering interest rates or increasing government spending (by instituting a tax cut or increasing taxes) would both increase aggregate demand, which can be risky during a recovery as it may lead to inflation or asset bubbles.

If a Country Is Trying to Recover from a Recent