Chapter 25
. My economy is in a recession
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2. I would use an expansionary policy to help the economy
3. I choose this type of policy because its used to increase money supply and lower
interest rates which therefore increases employment and real GDP so I am trying to
prevent underemployment and stimulate economic expansion
4. For reserve requirements as well as the discount rate I will lower it because it provides
banks with additional excess reserve to issue out more loans in the struggling economy
as well as making it easier for banks to borrow from the federal reserves at a lower rate.
The fed should also buy treasury securities through open market operations which will
increase the amount of money circulating in the economy
5. Through lowering the reserve requirement and discount rates, as well as buying treasury
bonds, they ultimately lower interest rates and increase the money supply, making it
easier for the recessed economy to get back on their feet. Since the interest rates will
decrease, there is a higher chance of loans for big purchases like houses or cars that
will then increase demand for these products, which further stimulates the economy to
grow. Since the demand will increase, firms and companies will need to higher more
workers to increase production, which also moves to decrease unemployment. Overall,
through decreasing discount rates and reserve requirements and participating in open
market operations, it will help to move the economy out of the recession.
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