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 tend to offset each other in trying to achieve that objective?
A) selling government securities and raising the discount rate
B) selling government securities and raising the reserve ratio
C) buying government securities and raising the discount rate
D) buying government securities and lowering the reserve ratio

Question

Quizplus · Accepted Answer

Buying government securities injects money into the economy, potentially stimulating economic growth by increasing the money supply and lowering interest rates. Raising the discount rate, however, makes borrowing more expensive for banks, potentially reducing the money supply and counteracting the stimulus effect of buying government securities.

The Major Problem Facing the Economy Is High Unemployment and Weak