What temporary policy is often used by the government to combat the decreased investment demand during a recession? a. offering an investment tax credit b. reducing regulations affecting firms c. decreasing government spending d. selling more bonds

a)

Explanation:

a) Offering an investment tax credit means lowering down tax burden to businesses, which will in turn attract more investment to be made. This can be done temporarily in the short term to attract investments, however if it persists in the longterm, it might adversely affected the government budget

b) Reducing regulations affecting firms may also be a viable option to encourage more investments. However, this option may take time to be implemented as changing regulations requires consensus and approval from multiple authorities.

c) Decreasing government spending is not appropriate in combating a the decreased demand in investment. Lowering government expenditure on public services, infrastructures, tax incentives, etc... make investment into a country less attractive.

d) Selling more bonds by the Government is an act of reducing money supply in the economy, which will cause a rise in short-term interest rates. This is actually an act of discouraging investments.

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