Question

Please answer the following question and explain why.

Which of the following actions is prudent if a regions economy undergoes the type of slow down experienced by the US (and the world) during the great recession in 2007?

A. an increasing of income taxes

B. an increase in the Fed's interest rate

C. an open market transaction by the Fed to buy government bonds from banks

D. an increase in the reserve ratio requirement

E. contractionary fiscal policy

Answer 1

Answer : option C)

As it was a recession, so expansionary policy should be implemented

So, A is Contractionary fiscal policy

While B & D are Contractionary monetary policy,

C is expansionary monetary policy, so it is used to combat with recession