Question

1a. Last three quarters’ GDP of a county are 3%, 2%, and -0.5%. This indicates that this country is in recession. (True or False)

b.During recession or economic downturn, government should use ____ (expansionary or contractionary) fiscal policy by _____ (increase or decrease) government spending and ____ (increase or decrease) taxes.

c.It is a good idea to acquire devalued assets during recession. (True or False)

d.When economy is too hot, federal reserve should ____ (buy or sell) Treasury bonds, ____ (increase or decrease) reserve requirement, and _____ (increase or decrease) discount rate in order to _____ (increase or decrease) money supply. As a result, inflation rate will go ____ (up or down).

e.When federal reserve decrease interest rate, cost of borrowing will ____(increase or decrease); return of savings and investment will ____(increase or decrease); therefore, business will _____ (increase or decrease) investment, consumers will _____ (increase or decrease) spending, _____ (increase or decrease) borrowing, and ______ (increase or decrease) savings.

Answer 1

Solution 1a

True. Recession is necessarily coupled woth declining and negative growth numbers.

Solution 1b

During recession government should use expansionary fiscal policy by increasing government spending wnd decrease in taxes.

Solution 1c

Teue. It i sgood idea ro acquire devalued assets as they have good fundamental and are attractive due to low prices and have potential for higher return on investment during boom phase.

Solution 1d

When economy is too hot federal reserve should sell treasury bonds, increasing reserve requirements and increasing discounts rate to decrease money supply. As results inflation will go down.

Solution 1e

When federal reserve decrease interest rate, cost of borrowing will decrease, return of savings and investment will increase, therefore business will increase investment, consumers spending, increase borrowing and decrease savings.

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