Expansionary Policies to Combat Recession

Steps:

• Identify recession effects: reduced spending, investment, and economic output.
• Recall monetary policy: lower interest rates encourage borrowing and spending.
• Recall fiscal policy: cut income taxes to boost disposable income and consumption.
• Combine policies: both expansionary measures stimulate demand to reduce recession impacts.

Why A is correct:

• Reduction in interest rates (monetary easing) lowers borrowing costs, while income tax cuts (fiscal stimulus) increase household spending, aligning with Keynesian demand-side economics to revive growth.

Why the others are wrong:

• B: Both measures are contractionary, raising costs and reducing spending, worsening recession.
• C: Interest rate hike curbs investment; tax cut helps but overall mix is inconsistent and ineffective.
• D: Both hikes tighten money supply and disposable income, deepening economic slowdown.

Final answer: A