ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The economy is expanding too quickly and rising inflation is a major concern.
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The federal government passes a new budget with a large deficit.
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The economy is prosperous with low inflation.
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A recession has reduced aggregate demand and increased unemployment.
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Detailed explanation-1: -Which of the following would cause the Fed to implement contractionary monetary policy? The AD curve shifts to the right.
Detailed explanation-2: -The inflation level is the main target of a contractionary monetary policy. By reducing the money supply in the economy, policymakers are looking to reduce inflation and stabilize the prices in the economy.
Detailed explanation-3: -The government deposits U.S. Treasury notes at the Fed like you deposit cash. To implement a contractionary policy, the Fed sells these Treasurys to its member banks. The bank must pay the Fed for the Treasurys, reducing the credit on its books. As a result, banks have less money available to lend.
Detailed explanation-4: -A central bank, such as the Federal Reserve in the U.S., will use expansionary monetary policy to strengthen an economy.