Which of the following policies can be adopted by the Fed in order to stimulate an economy in the short run?
A) increasing the market interest rate
B) purchasing U.S. government securities
C) increasing the discount rate
D) increasing the price of consumer goods
E) increasing the required reserve ratio

Question

Quizplus · Accepted Answer

By purchasing U.S. government securities, the Fed injects money into the economy, which can stimulate growth in the short run by increasing spending and investment.

Answer: C and E are incorrect because increasing the discount rate and required reserve ratio would reduce the amount of money banks have available to lend, which can slow down economic activity. A and D are incorrect because increasing the market interest rate and the price of consumer goods can also lead to reduced spending and investment in the short run, which can further slow down economic growth.

Which of the Following Policies Can Be Adopted by the Fed