If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment,which of the following would be most appropriate?
A)a larger government surplus and a reduction in the bank rate
B)a government surplus and the sale of securities in the open market by the Bank of Canada
C)a larger government deficit and an increase in the bank rate
D)a larger budget deficit and the purchase of securities in the open market by the Bank of Canada

Question

Quizplus · Accepted Answer

Both a larger budget deficit and the purchase of securities in the open market by the Bank of Canada would stimulate demand and reduce unemployment. A larger deficit would increase government spending, which would stimulate demand, and the purchase of securities by the Bank of Canada would lower interest rates, which would make borrowing cheaper for businesses and individuals, leading to increased spending and investment.

If Policy Makers Wanted to Use Both Monetary and Fiscal