Financial Planner

Answer: C - During a recession the Federal Reserve puts money into circulation and expands the supply of credit. This expansion will at least initially decrease interest rates until the stimulus increases the level of economic activity. The federal government will adopt an expansionary fiscal policy. Lower taxes and increased government expenditures will increase aggregate demand for goods and services. This increase demand is designed to stimulate economic activity, which reduces the level of unemployment. To take advantage of the economic stimulus, the investor should seek to move out of short-term money market instruments into common stocks of firms that will benefit from the expansionary monetary and fiscal policy.