Question

At equilibrium real GDP in a private closed economy,

Multiple Choice

• the MPC must equal the APC.

• the slope of the aggregate expenditures schedule equals the MPS.

• aggregate expenditures and real GDP are equal.

• planned saving and consumption are equal.

Government actions that were taken in order to stimulate the economy during the Great Recession of 2007–09 included the following, except

Multiple Choice

• a significant reduction of interest rates to nearly zero.

• a large increase in transfer payments.

• an increase in the deficit spending of the government.

• a sharp increase in the natural rate of unemployment.

Answer 1

Ans.1- (C)

Ans.2- (A)

The Great Recession of 2008-09 resulted in the economy falling into a deep recession and in sync with the Keynesian economic theory, the policymakers pursued expansionary monetary and fiscal policies. While some action had an impact on economic growth, there were other policies that failed to stiumulate economic growth. The points below elaborate on various actions and their impact.

The first key action of expansionary monetary policy was that the policymakers cut interest rates to near-zero levels. The objective was to provide easy money to business and individuals in order to trigger investment and spending growth.