Question

If the economy moves into recession, monetarists argue that the Fed shouldA. Keep the money supply growing at a constant rateB. Keep the money supply fixedC. Increased the federal funds rate

Answer 1

A) Keep the money supply growing at a constant rate

Step-by-step explanation:

Recession in a economy is characterized by slow down in economic activity, business are reporting losses so they stop expanding resulting in loss of job opportunities and required labor.

An economic recession is said to have occurred when there are two or more consecutive quarters of negative economic growth. When a economy is undergoing recession so business revenue and sales decline, aggregate demand in an economy drops, resulting in losses by corporations who in turn stop production and abort expansion plans.

Thus in order to stimulate aggregate demand and investments by businesses Fed should keep the money supply increasing by reducing federal fund rates.