During the Johnson administration, the U.S. economy was headed toward an inflationary gap. In 1967 President Johnson proposed a temporary 10% increase in personal income taxes. If the Fed wanted to mitigate the effects of this contractionary policy, what could it do?
A) Conduct an open market purchase
B) Conduct an open market sale
C) Raise the reserve requirement ratio
D) Raise the discount rate

Question

Quizplus · Accepted Answer

Conducting an open market purchase would increase the money supply, lower interest rates, and counteract the contractionary effects of the tax increase.

During the Johnson Administration, the U