If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep the price level steady?
A) Do nothing,since the self-correcting mechanism will adjust the economy
B) Sell bonds in the open market
C) Wait,since the price level usually does not change when government spending increases
D) Decrease the required reserve ratio
E) Buy bonds in the open market.

Question

Quizplus · Accepted Answer

Selling bonds in the open market decreases the money supply, which can help offset inflationary pressures from increased government spending, keeping the price level steady.

If There Is a Sudden Increase in Government Spending,which of the Following