The effects of a decline in the value of financial assets,such as stocks,on consumption and the economy might be offset by
A)increasing government spending.
B)decreasing the money supply.
C)increasing taxes.
D)undertaking no policy action.

Question

Quizplus · Accepted Answer

If the value of financial assets, such as stocks, decline, consumers may feel less wealthy and may reduce their consumption. However, if the government increases its spending, this may stimulate demand and offset the decline in consumption. This is known as fiscal policy, which involves government spending and taxation. Decreasing the money supply (monetary policy) may also help to offset the decline in consumption by increasing the value of the currency and potentially reducing inflation. However, increasing taxes may reduce consumption further and may not be the best option in a downturn. Undertaking no policy action may lead to a prolonged downturn in the economy. Therefore, choice A, increasing government spending, is the best answer.

The Effects of a Decline in the Value of Financial