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During a recession, monetary policy typically has an immediate impact via ... an increase of long...

During a recession, monetary policy typically has an immediate impact via ...

  • an increase of long term interest rates.
  • a reduction of long term interest rates.
  • an increase of short term interest rates.
  • a reduction of short term interest rates.
  • a reduction of inflation expectations.
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Answer #1

During a recession, monetary policy is used to stimulate the economy. It should be noted that monetary policy does not what impact does not impact long term interest rates as there are other considerations for determination of the long term Interest rates.

Therefore, only short run interest rates are are affected by the monetary policy immediately.

During a recession, monetary policy typically has an immediate impact via a reduction of short term interest rates due to an increase in money supply. This leads to an increase in investment spending and aggregate demand and thus, economy is stimulated during a Recession.

Hence, Fourth Option is correct.

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