The Fed and the government are working against each other if, as the government cuts taxes to promote economic growth, the Fed
A)sells government securities.
B)buys government securities.
C)lowers the discount rate.
D)lowers the prime rate.

Question

Quizplus · Accepted Answer

When the government cuts taxes to promote economic growth, it can lead to an increase in inflation. In order to combat inflation, the Fed may choose to sell government securities, which reduces the amount of money in circulation and can help to control inflation. Therefore, the Fed working against the government's tax cuts is best represented by selling government securities.

The Fed and the Government Are Working Against Each Other