Question

Cheap money policy is followed to _______.

• A. counter inflation
• B. to reverse depression
• C. to appease the public
• D. to increase disposal income of the house holds

Answer 1

The correct option is B to reverse depression

Cheap money policy refers to a monetary policy by the central bank where the central bank sets low interest rates so that credit is easily available to the general public in order to bring efficiency in trade and commerce in an economy. Such a policy is used by the government at the time of deflation or recession in the economy in order to reverse depression from the economy as such a policy increases the purchasing power of the people by increasing the money supply in the economy.