SIE Understanding Products and Their Risks Question 5: Answer and Explanation

Question: 5

Which of the following is a method used by the U.S. government to implement fiscal policy to stimulate the economy?

• A. Increasing the discount rate
• B. Decreasing the fed funds rate
• C. Increasing lock-up period on initial public offerings (IPOs)
• D. Financing deficit spending

Correct Answer: D

Explanation:

D: Financing deficit spending is a way the government can stimulate the economy through borrowing to support spending in excess of receipts. Choices A and B are ways in which the Federal Reserve implements monetary policy to stimulate growth without undue inflation. Choice C is intended to prevent insiders who acquired stock before it went public from profiting from the increase in the share price until a certain amount of time has passed and is not directly related to stimulating the economy.