If the Economy Were in a Recession,which of the Following

question 23

Multiple Choice

If the economy were in a recession,which of the following policies would a person who favors an active approach to policy be most likely to support?

• A)The economy should be left to cure itself without government intervention.
• B)The Fed should sell U.S.government securities in its open-market operations.
• C)The Fed should raise the discount rate.
• D)Government lower tax rates.
• E)The Fed should raise the required reserve ratio.

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Definitions:

Diversifiable Risk

The portion of investment risk that can be reduced or eliminated through diversification among different assets.

Financial Leverage

Utilizing debt to finance additional assets, aiming to increase returns to shareholders but also increasing risk.

ROE

A metric indicating how effectively a company uses shareholders' funds to generate profits.

Financial Leverage

The use of borrowing to increase the potential return of an investment.