Question

Why would adjusting the money supply be expected to increase economic growth during a recession? A) Increasing the money supply will encourage more saving. B) Increased money supply will encourage more spending and investment. C) Decreased money supply will encourage more spending and investment. D) Recession is caused by too much spending, so money supply must be reduced.

Answer 1

B) Increased money supply will encourage more spending and investment.

Increasing the money supply means lowering interest rates to make it easier and cheaper to borrow money, which means that it will be easier and cheaper to spend money which will help stimulate the economy.

Answer 2

B

Step-by-step explanation:

According to Macroeconomics, in recession times, the first maneuver out is to increase the money supply. Keynesian economists argue that increasing that flow, will not only encourage more spending and investment but also turn a low aggregate demand into a higher one.

In addition to this, the Liquidity Theory advocates that the interest rates will be cheaper due to the increased flow of money into the economy.