Answer to Question #59174 in Macroeconomics for John Rivas
wants to stimulate the economy [increase Q] during a recession it must:
A. Increase (Decrease) M by selling (buying)
v. All (none) of the above
B. What can go wrong?
C. Explain how this works.
The more money that is available in the market for lending, the lower the rates on these loans become, which causes more borrowers to access cheaper capital. This easier access to capital leads to greater investment and will often stimulate the overall economy. However, the increase in monetery base can lead to the inflation – a decrease of the money’s actual value.
An increase in monetary base means an increase money supply. Therefore by buying bonds the government supplies money to the market.
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