If the Economy Were Encountering a Severe Recession, Proper Monetary

question 90

Multiple Choice

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for

• A)selling government securities, raising the reserve ratio, lowering the discount rate, increasing interest paid on reserves held at Fed banks, and a budgetary surplus.
• B)buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.
• C)buying government securities, raising the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary surplus.
• D)buying government securities, reducing the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

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Definitions:

Coupon Rate

The annual interest rate paid by a bond issuer to the bondholders, usually expressed as a percentage of the bond's face value.

Semi-Annually

A frequency of twice a year, often used in the context of payment or performance evaluation periods.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as mortgage interest, depreciation, or charitable donations.

All Equity

A financial structure where a company is financed entirely through equity without any debt financing.