Author Question: Consider the following statement, The Federal Reserve fights recessions by increasing the money ... (Read 43 times)

future617RT · **on:** Jun 29, 2018

Consider the following statement, The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend. What is wrong with the statement and how can it be corrected?

What will be an ideal response?

Question 2

If the marginal propensity to save is 0.35, the multiplier is 2.86.

Indicate whether the statement is true or false

cam1229 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The Federal Reserve fights recessions by increasing the money supply to lower interest rates, which in turn increases spending. It is not that people will have more money to spend, but that interest rates will be lower, which stimulates spending.

Answer to Question 2

TRUE