The economy is currently experiencing high inflationary pressure with low unemployment and steady GDP growth. Which of the following would be a plausible course of action?(1 point)

Question

Responses

Congress should use fiscal policy to lower taxes and encourage spending
Congress should use fiscal policy to lower taxes and encourage spending

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

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

Given the context of high inflationary pressure combined with low unemployment and steady GDP growth, the most plausible course of action would be:

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

Raising the reserve requirement would reduce the amount of money banks can lend, which could help to cool inflation by decreasing the money supply in the economy. Other options, like lowering taxes or increasing spending, would likely exacerbate inflation, while buying government bonds would also increase the money supply, which is not advisable in an inflationary environment.