The Fed has conducted expansionary monetary policy to combat a recession but is running up against the zero lower bound, andthe economy is still not recovering. What other steps could the government take to try to stabilize the economy?Steps the government could take to stabilize the economyincrease government spendingraise real interest rateslower taxesincrease transfer paymentsSteps the government should not or cannot take to stabilizethe economyAnswer Bankdecrease government spendingraise taxeslower real interest ratesdecrease transfer payments

An expansionary monetary policy basically refers to a type of macroeconomic monetary strategy that aims to accelerate monetary expansion in order to support domestic economic growth. For economic development to be boosted, more funding must be made accessible. The influx of money promotes consumer spending as well as corporate capital investments. Steps the government could take to stabilize the economy Steps the government should not or cannot take to stabilize the economy. Lower taxes Increase government spending Increase transfer payments raise taxes decrease government spending decrease transfer payments raise real interest rate lower real interest rate The economy is reportedly in a recession.The Fed is using an expansionary monetary strategy to combat and end the recession.The money supply rises as a result of an expansionary monetary policy.By lowering the real interest rate, this increase in the money supply boosts the economy.The zero lower bound has now been reached by the Fed's expansionary strategy, nevertheless.This indicates that since the real interest rate is already equal to zero or is approaching zero, expanding the money supply will not be able to further reduce the real interest rate. The monetary policy's efficacy is thereby constrained, or rather rendered ineffective. When monetary policy is no longer able to combat the recession, the government must turn to fiscal policy to end the downturn. Government must implement an expansionary fiscal strategy during a recession.These are some examples of expansionary fiscal policy actions:1. The government needs to spend more money.2. The government should boost transfer payments.3. Taxes must be cut by the government. All of these acts enhance aggregate demand, which in turn increases real GDP and ends the recession. The economy's interest rates are unaffected by the government.The Federal Reserve's policy is focused on it.Therefore, neither a rise nor a drop in real interest rates are brought about by government.

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The Fed has conducted expansionary monetary policy to combat a recession but is running up against the zero lower bound, and the economy is still not recovering. What other steps could the government take to try to stabilize the economy? Steps the government could take to stabilize the economy Steps the government should not or cannot take to stabilize the economy

The Fed has conducted expansionary monetary policy to combat a recession but is running up against the zero lower bound, and the economy is still not recovering. What other steps could the government take to try to stabilize the economy? Steps the government could take to stabilize the economy Steps the government should not or cannot take to stabilize the economy

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Chapter1: Making Economics Decisions

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The Fed has conducted expansionary monetary policy to combat a recession but is running up against the zero lower bound, and
the economy is still not recovering. What other steps could the government take to try to stabilize the economy?
Steps the government could take to stabilize the economy
increase government spending
raise real interest rates
lower taxes
increase transfer payments
Steps the government should not or cannot take to stabilize
the economy
Answer Bank
decrease government spending
raise taxes
lower real interest rates
decrease transfer payments

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