If a market economy was in a recession, which of the following would help direct it back toward the full employment rate of
output?
(1) lower resource prices and lower real interest rates
(2) an increase in the rate of inflation
(3) higher resource prices and higher real interest rates
(4) a decrease in the natural rate of unemployment
(4)

Historically, recessions often lead policymakers to implement strategy adjustments to revive economic growth. During the Great Depression, for instance, the U.S. government adopted substantial fiscal policies and created job programs, illustrating the effectiveness of interventions like lowering resource prices and real interest rates to stimulate demand and boost employment.

In practice, lowering resource prices and real interest rates can help businesses invest and expand, which could create jobs and decrease unemployment. For instance, during the 2008 financial crisis, central banks lowered interest rates significantly, making it cheaper for consumers to borrow money. This approach helps jumpstart consumer spending, essential for economic recovery.