Lowering interest rates to boost economic activity

Steps:

• Identify the context: A recession reduces output and employment, prompting central banks to act.
• Recall monetary policy tools: Decreasing interest rates makes borrowing cheaper, encouraging investment and spending.
• Link to macroeconomic goals: This stimulates aggregate demand, aiming to increase GDP and end the recession.
• Evaluate options: Match the policy's primary intent to the choices provided.

Why A is correct:

• Lower interest rates reduce the cost of borrowing, increasing investment and consumption per the IS-LM model, directly promoting economic growth.

Why the others are wrong:

• B: Lower rates weaken the currency, typically reducing the current account surplus by boosting imports.
• C: This policy risks higher inflation by expanding demand, not targeting low inflation.
• D: Interest rate changes affect borrowing costs broadly but do not directly redistribute income.

Final answer: A