ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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cutting government spending
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expansionary fiscal policy
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lowering the discount rate
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the Federal Reserve buying bonds
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Detailed explanation-1: -As people are earning higher wages, they spend more money in the economy – adding to demand. The downswing of the business cycle towards a trough is called an economic contraction. It is associated with: decrease in production/output • increase in unemployment • decrease in wages • decrease in consumer spending.
Detailed explanation-2: -The decrease in spending reduces aggregate demand for goods and services, slowing economic growth temporarily. Alternatively, when the government reduces spending, it reduces aggregate demand in the economy, which again temporarily slows economic growth.
Detailed explanation-3: -One recent example of a major economic contraction was the one caused by the COVID-19 pandemic, though there have been many over the past century. A contraction ends when prices fall enough to attract renewed demand.
Detailed explanation-4: -Answer and Explanation: (c) The Fed raises the discount rate is an example of contractionary monetary policy.