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?

Question

Quizplus · Accepted Answer

Buying government securities increases the money supply, which can lead to increased economic growth. Raising the discount rate, however, can make it more expensive for banks to borrow money and lend it out, potentially slowing economic growth. These two policies would tend to offset each other in trying to achieve the objective of increasing economic growth. Selling government securities and raising the reserve ratio (choices A and B) would both tend to decrease the money supply, which would work against the goal of increasing economic growth. Buying government securities and lowering the reserve ratio (choice D) would both tend to increase the money supply, which could be effective in promoting economic growth.

The Major Problem Facing the Economy Is High Unemployment and Weak