If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:
A) decreasing money supply growth to spur the economy out of the recession.
B) increasing money supply growth,lowering real interest rates,and encouraging borrowing.
C) increasing government expenditures to spur the economy out of the recession.
D) decreasing corporate taxes to encourage firms to increase their spending.

Question

Quizplus · Accepted Answer

The best option for the Fed to counteract decreased spending by businesses due to a pessimistic outlook is to increase money supply growth, which will lower real interest rates and encourage borrowing. This stimulates spending and investment, which can help spur the economy out of a recession. Decreasing money supply growth, increasing government expenditures, and decreasing corporate taxes may also be helpful strategies in certain circumstances, but they are not the most effective in this given scenario.

If Businesses React to a Pessimistic Outlook and Decrease Spending,the