Question

The economy is currently experiencing high inflationary pressure with low unemployment and steady GDP growth. Which of the following would be a possible course of action?(1 point) Responses Congress should buy government bonds to increase the money supply using monetary policy Congress should buy government bonds to increase the money supply using monetary policy Congress should use fiscal policy to lower taxes and encourage spending Congress should use fiscal policy to lower taxes and encourage spending The Federal Reserve should use monetary policy and raise the reserve requirement, decreasing the money supply The Federal Reserve should use monetary policy and raise the reserve requirement, decreasing the money supply The Federal Reserve should use fiscal policy to raise interest rates to encourage spending

Answer 1

In the scenario you provided, characterized by high inflationary pressure, low unemployment, and steady GDP growth, the appropriate course of action would be to consider measures that can help control inflation rather than exacerbate it.

The possible suitable action would be:

The Federal Reserve should use monetary policy and raise the reserve requirement, decreasing the money supply.

This action would help to reduce the money supply, which can help to decrease inflationary pressures.

The other options, such as lowering taxes to encourage spending or buying government bonds, would typically increase the money supply and could further fuel inflation, which is contrary to the goal of managing high inflation.

Therefore, among the options you provided, the correct choice is the one that involves raising the reserve requirement.