Based on the situation depicted in the graph below,which of the following would be an appropriate monetary policy response?
A) decrease reserve requirements
B) decrease the discount rate
C) buy government bonds
D) none of the above

Question

Based on the situation depicted in the graph below,which of the following would be an appropriate monetary policy response? 
A) decrease reserve requirements 
B) decrease the discount rate 
C) buy government bonds 
D) none of the above

Quizplus · Accepted Answer

The graph shows a decrease in the level of real GDP and an increase in the unemployment rate, indicating a contractionary gap or recessionary gap. To address this, an appropriate monetary policy response would be to stimulate demand and increase spending. Buying government bonds by the central bank would increase the money supply, lower interest rates, and encourage borrowing and spending by consumers and businesses. Therefore, option C is the best choice. Decreasing reserve requirements or the discount rate may also help stimulate the economy, but they are less effective in the current situation where interest rates are already low.

Based on the Situation Depicted in the Graph Below,which of the Following