Actual GDP in a country is estimated to be 10% below potential GDP. Prices are v

Question

Actual GDP in a country is estimated to be 10% below potential GDP. Prices are virtually unchanged from one year ago. Unemployment is 12% of the labor force (much higher than the natural rate of unemployment). Which of the following policies would be the most appropriate for improving these econojmic conditions?

A.

Increases in reserve requirements on deposits at commercial banks.

B.

Reductions in federal debt.

C.

Increases in corporate and personal income taxes.

D.

Decreases in interest rates by the central bank.

Explanation / Answer

Decreases in interest rates by the central bank will increase the money supply and aggregate demand in the economy, thereby boosting the economic growth, output and employment in the economy.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.