If Congress increases taxes to balance the federal budget,then to prevent additional unemployment and a recession the Fed can
A)reduce interest rates by increasing the money supply.
B)increase interest rates by decreasing the money supply.
C)increase interest rates by increasing the money supply.
D)reduce interest rates by decreasing the money supply.

Question

Quizplus · Accepted Answer

If Congress increases taxes, it could lead to a decrease in consumer spending and business investments which could result in unemployment and a recession. The Fed can prevent this by reducing interest rates, which will increase the money supply and encourage spending and investment. This policy is known as expansionary monetary policy.

If Congress Increases Taxes to Balance the Federal Budget,then to Prevent