If the current equilibrium output level is above the full-employment output level,the Fed should consider

Question

Quizplus · Accepted Answer

When the current equilibrium output level is above the full-employment output level, there is a risk of inflationary pressure in the economy. To control the inflationary pressure, the Fed should implement contractionary monetary policy. Selling government securities, raising the discount rate, and raising the required reserve ratio are all contractionary measures that can reduce the money supply in the economy and control inflation. Therefore, choice A is the best choice. Choice E is not an effective contractionary measure as it lowers the required reserve ratio, which would increase the money supply and exacerbate inflationary pressures.

If the Current Equilibrium Output Level Is Above the Full-Employment