Asked by Annabel Marquez on Jun 18, 2024
Verified
If a recessionary GDP gap exists,which of the following sets of policies should the Federal Reserve Board pursue?
A) Sell government securities,lower the discount rate,and lower the required reserve ratio.
B) Sell government securities,lower the discount rate,and raise the required reserve ratio.
C) Buy government securities,raise the discount rate,and lower the required reserve ratio.
D) Buy government securities,lower the discount rate,and lower the required reserve ratio.
E) Buy government securities,lower the discount rate,and raise the required reserve ratio.
Federal Reserve Board
The governing body of the Federal Reserve System, responsible for overseeing the U.S. central banking system.
Government Securities
Financial instruments issued by a government to raise funds from the public, including bonds and treasury bills, with a promise to pay back with interest.
- Acquire knowledge on the duties and mechanisms the Federal Reserve utilizes in controlling monetary policy.
- Identify the impact of monetary policy on economic conditions, particularly in terms of inflation and differences in Gross Domestic Product.
Verified Answer
CC
Christie CzajkaJun 22, 2024
Final Answer :
D
Explanation :
If there is a recessionary gap, it means that actual output is less than potential output. To close this gap, the Federal Reserve can pursue expansionary monetary policies. Buying government securities increases the money supply, lowering the discount rate encourages banks to lend more, and lowering the required reserve ratio increases the funds available for lending. Therefore, choice D would be the best option as it includes all three expansionary policies.
Learning Objectives
- Acquire knowledge on the duties and mechanisms the Federal Reserve utilizes in controlling monetary policy.
- Identify the impact of monetary policy on economic conditions, particularly in terms of inflation and differences in Gross Domestic Product.