A stock market crash will cause Group of answer choices aggregate demand to decrease, which the Fed could offset by purchasing bonds. aggregate demand to decrease, which the Fed could offset by selling bonds. aggregate demand to increase, which the Fed could offset by selling bonds. aggregate demand to increase, which the Fed could offset by purchasing the money supply.

Question

Jada Foley

Business

21 April, 17:58

A stock market crash will cause Group of answer choices aggregate demand to decrease, which the Fed could offset by purchasing bonds. aggregate demand to decrease, which the Fed could offset by selling bonds. aggregate demand to increase, which the Fed could offset by selling bonds. aggregate demand to increase, which the Fed could offset by purchasing the money supply.

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Kassandra Ballard · Answer 1

A stock market crash will cause aggregate demand to decrease, which the Fed could offset by purchasing bonds.

Explanation:

A stock market crash happens when the prices of stocks fall generally and suddenly that investors are taken unawares. It triggers some reactions which further threatens the market overall and depresses aggregate demand. It also weakens investors' confidence, reduces productivity, consumption, and the ability of firms to fund their activities, and leads the economy to recession.

Stock market crashes are triggered by unexpected economic event, catastrophe, or crisis. For example, the collapse of Lehman brothers as a result of bankruptcy. They are further exacerbated by panic reactions, underlying economic underperformance, and investors' fear.

The Fed as the US central bank in charge of the monetary policy can try to stem the downward spiral caused by a stock market crash by purchasing bonds. This makes more money available in the economy for consumption.

Before the crash, the Fed can decide to bail out the institution, e. g. an airline or a financial institution, that could trigger a crash. But, most stock market crashes are not foreseen.