If monetary policymakers fear a recession resulting from increased pessimism on the part of business people, and they want to avoid the recession, they would:
A)Shift the monetary policy reaction curve to the right
B)Shift the monetary policy reaction curve to the left
C)Likely lower their target rate for inflation
D)Encourage fiscal policymakers to act

Question

Quizplus · Accepted Answer

Shifting the monetary policy reaction curve to the right means that the central bank would be more expansionary in response to a given level of expected inflation. This would result in lower interest rates and more credit available, which could help stimulate business investment and consumer spending, thus reducing the risk of a recession. Lowering the target rate for inflation (choice C) alone may not be sufficient to boost economic activity, especially if business confidence is weakened, while encouraging fiscal policymakers to act (choice D) may take longer to produce results and may depend on political factors beyond the control of monetary authorities.

If Monetary Policymakers Fear a Recession Resulting from Increased Pessimism