Why would adjusting the money supply be expected to increase economic growth during a recession?

Question

Social Studies

Elaine Burns

2 October, 04:08

Why would adjusting the money supply be expected to increase economic growth during a recession?

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Answers (2)

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Juliana Holt · Answer 1

Economic growth takes place when a country's GDP (Gross Domestic Product) figures increase from one period to the next.

The components of GDP are the different variables that constitute the demand or overall spending schedule in such country: consumption, investment, public spending and net exports.

When the money supply is increased, due to the law of supply, as the amount available is larger, the price of money, also known as interest rate, decreases. In such situation, borrowing money to start new projects becomes cheaper and economic agents use this opportunity to increase their investment expenses. Investment increases and, as it is a component of the GDP, GDP increases too and there is economic growth ("ceteris paribus" = if everything else remains the same).

Jean Sheppard · Answer 2

1. the federal gov decides to offset a $50 billion decline in business spending. the gov could spend %50 billion directly on projects, or it could reduce tax rates by the same amount. whether the action taken by the federal gov is direct or indirect the result is most likely

c. a short-term trigger of unemployment insurance

2. which of these forms of taxation has been criticized for placing an excessive burden on people with less to pay?

c. progressive taxes

3. who is responsible for collecting property taxes?

d. district gov

4. which of these would the federal reserve consider doing if it wanted to attempt to keep inflation in control?

b. raise interest rates

5. why would adjusting the money supply be expected to increase economic growth during a recession?

b. increased money supply will encourage more spending and investment

6. Carlos is a 7th grader at eckerd middle school. which of these taxes is he most likely to have paid over the past 12 years?

a. sales tax

7. the federal reserve institutes a tight monetary policy in order to reign in inflation. what us likely consequence of such action?

a. the stock market will crash

8. fearing a recession, the gov decides to hive citizens a tax rebate check to by Christmas gifts. what is a possible outcome of this action?

b. lower rates of inflation

9. what does contractionary fiscal policy do to economic growth?

d. does not affect it