Asked by kyaira jackson on Jul 12, 2024
Verified
If the current equilibrium output level is above the full-employment output level,the Fed should consider
A) selling government securities,raising the discount rate,and raising the required reserve ratio.
B) selling government securities,lowering the discount rate,and raising the required reserve ratio.
C) buying government securities,lowering the discount rate,and raising the required reserve ratio.
D) buying government securities,raising the discount rate,and raising the required reserve ratio.
E) selling government securities,raising the discount rate,and lowering the required reserve ratio.
Full-Employment Output
is the level of output that an economy can produce when operating at a full employment level, where all available labor and resources are being used efficiently.
Government Securities
Financial instruments issued by the government to finance its expenditures, offering investors a relatively safe investment option compared to other securities.
Discount Rate
The interest rate charged to commercial banks and other financial institutions for loans received from a country's central bank.
- Investigate how actions taken by the Federal Reserve influence interest rates and the supply of money.
Verified Answer
SL
Sherry LabibJul 18, 2024
Final Answer :
A
Explanation :
When the current equilibrium output level is above the full-employment output level, there is a risk of inflationary pressure in the economy. To control the inflationary pressure, the Fed should implement contractionary monetary policy. Selling government securities, raising the discount rate, and raising the required reserve ratio are all contractionary measures that can reduce the money supply in the economy and control inflation. Therefore, choice A is the best choice. Choice E is not an effective contractionary measure as it lowers the required reserve ratio, which would increase the money supply and exacerbate inflationary pressures.
Learning Objectives
- Investigate how actions taken by the Federal Reserve influence interest rates and the supply of money.