The major problem facing the economy is high unemployment and weak economic growth. The inﬂation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed
Would reinforce each other to achieve that objective?
A) selling government securities, doing reverse repos, and raising the discount rate
B) selling government securities, doing repos, and lowering the discount rate
C) buying government securities, doing repos, and lowering the discount rate
D) buying government securities, doing reverse repos, and raising the reserve ratio

Question

Quizplus · Accepted Answer

Buying government securities will increase the money supply, leading to lower interest rates and increased investment and consumer spending, which will help stimulate economic growth. Doing repos will also increase the money supply and lower interest rates, while lowering the discount rate will encourage banks to borrow more, leading to increased lending and investment. Together, these policies will reinforce each other to achieve the objective of increasing economic growth. Selling government securities, doing reverse repos, and raising the reserve ratio would have the opposite effect and could potentially harm growth.

The Major Problem Facing the Economy Is High Unemployment and Weak