China Cuts Banks’ Reserve Ratio to Aid Recovery

China’s central bank said it would cut the reserve requirement for the second time this year to help support economic recovery. The government has also rolled out a series of policy measures in recent months.—cnbc.com

Answer the following questions to check your understanding of the story.

1) How does a cut in the reserve requirement help support economic recovery?

A cut in the reserve requirement _____________.

a) increases the quantity of money, and potential GDP increases

b) decreases the quantity of money, and the inflation rate falls

c) increases the quantity of money, and aggregate demand increases

d) increases the quantity of money, and short-run aggregate supply increases

2) What actions could China’s government take to support economic recovery?

China’s government could _____________.

a) raise taxes and decrease spending

b) raise interest rates

c) lower taxes and increase spending

d) lower interest rates and lower taxes

China Cuts Banks’ Reserve Ratio to Aid Recovery

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