Asked by Andrews Osei antwi on Jul 25, 2024
Verified
During a depression,the best strategy of the Federal Reserve is to
A) sell government bonds,to make low-risk,sound assets available for commercial banks to buy.
B) sell government bonds,in order to reduce the size of the government's deficits.
C) sell government bonds,in order to increase aggregate demand.
D) buy government securities.
Depression
An intense and extended period of economic recession marked by a substantial drop in Gross Domestic Product (GDP), elevated rates of joblessness, and a decrease in the general price level of goods and services.
Aggregate Demand
The aggregate requirement for all products and services within an economy, measured at a specific overall price level and during a certain time frame.
- Acquire knowledge about the role of monetary policy in the economy, with an emphasis on its impact on inflation, interest rates, and real GDP.
- Identify the tools utilized by the Federal Reserve to implement monetary policy.
Verified Answer
RC
Rohith ChemitigantiJul 25, 2024
Final Answer :
D
Explanation :
During a depression, the best strategy of the Federal Reserve is to buy government securities. This is because buying government securities increases the money supply in the economy, which lowers interest rates and encourages lending and spending. This increased spending boosts aggregate demand, which helps to pull the economy out of a recession. Selling government bonds, as in options A, B, and C, would have the opposite effect by reducing the money supply and increasing interest rates, which would further depress economic activity.
Learning Objectives
- Acquire knowledge about the role of monetary policy in the economy, with an emphasis on its impact on inflation, interest rates, and real GDP.
- Identify the tools utilized by the Federal Reserve to implement monetary policy.