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Suppose that the economy is in the midst of a recession

Economics Dec 12, 2020

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A congressional decision to increase government spending Reductions in agricultural subsidies An increase in the rate of interest An increase in federal tax rates on personal income

Expert Solution

Answer: 3rd option

Explanation: An increase in the rate of interest would most likely end the recession and stimulate output growth. During the period of recession, interest rate lowers and that lead to economic and output growth crisis. Therefore, an increase in the interest rate has the potential to end the recession and stimulate output growth. Hence, 3rd option is the correct answer. 1st option is incorrect because a congressional decision to increase government spending would strengthen the recession and can lead to output growth crisis. Reduction in agricultural subsidies will affect money supply. 2nd option is incorrect because recession will not end by reducing agricultural subsidies. 4th option is incorrect because a decrease in federal tax rates on personal income, not it's increase, would likely end the recession and stimulate output growth

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