The Policy Response to the Recession of 2008-2009 Provided an Experiment

question 15

Multiple Choice

The policy response to the recession of 2008-2009 provided an experiment on the potency of Keynesian fiscal policy. In what respect was this true?

• A) The money supply increased rapidly and the short-term interest rates were pushed to near zero just as the Keynesian model of fiscal policy recommends.
• B) Government spending increased sharply and the budget deficits were large just as the Keynesian model of fiscal policy recommends.
• C) The money supply increased rapidly and the budget was shifted toward a surplus just as the Keynesian model recommends.
• D) The federal budget was balanced just as the Keynesian model indicates would be prudent policy during a recession.

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Definitions:

"Read my Lips"

A famous phrase that often implies a strong promise or commitment, notably used by George H.W. Bush in his 1988 presidential campaign to assure no new taxes.

George H.W. Bush

The 41st President of the United States, serving from 1989 to 1993, known for his foreign policy leadership during the Gulf War and the end of the Cold War.

Roaring 20s

Refers to the 1920s decade characterized by significant economic growth, technological innovation, and cultural flourishing in many Western countries.

Peacetime Economy

An economy operating in a period without war, often characterized by stability, growth, and the absence of military-driven spending.