Figure 17-14

-Refer to Figure 17-14.In the figure above,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Federal Reserve would be to
A)lower interest rates.
B)raise interest rates.
C)lower income taxes.
D)raise income taxes.

Question

Figure 17-14
 
-Refer to Figure 17-14.In the figure above,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Federal Reserve would be to
A)lower interest rates. 
B)raise interest rates. 
C)lower income taxes. 
D)raise income taxes.

Quizplus · Accepted Answer

Point B represents an expansion in the economy, and therefore an increase in inflation. In order to combat the potential for inflation, the Federal Reserve would need to raise interest rates, which would decrease borrowing and spending, ultimately slowing down the economy.

Figure 17-14 -Refer to Figure 17-14.In the Figure Above,if the Economy in Above,if