ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the economy is in a recession, increase government spending or cut taxes or increase the money supply. If instead we want to bring down inflation, then cut government spending, raise taxes, or reduce the money supply.

Detailed explanation-2: -Do interest rates rise or fall in a recession? Interest rates usually fall during a recession. Historically, the economy typically grows until interest rates are hiked to cool down price inflation and the soaring cost of living. Often, this results in a recession and a return to low interest rates to stimulate growth.

Detailed explanation-3: -During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.

Detailed explanation-4: -The Fed can increase the money supply by lowering the reserve requirements for banks, which allows them to lend more money. Conversely, by raising the banks’ reserve requirements, the Fed can decrease the size of the money supply.