The Fed would engage in ____ it wanted to address an inflationary gap.
A)expansionary monetary policy
B)contractionary monetary policy
C)contractionary fiscal policy
D)expansionary fiscal policy

Question

The Fed would engage in ____ it wanted to address an inflationary gap.
A)​expansionary monetary policy
B)​contractionary monetary policy
C)​contractionary fiscal policy
D)​expansionary fiscal policy

Quizplus · Accepted Answer

The Fed would engage in contractionary monetary policy in order to address an inflationary gap. This would involve actions such as increasing interest rates, reducing the money supply, and selling securities on the open market in order to decrease aggregate demand and decrease inflationary pressure. Expansionary monetary policy, on the other hand, would be used to address a recessionary gap and involves actions such as decreasing interest rates, increasing the money supply, and buying securities on the open market in order to stimulate aggregate demand and increase economic activity. Fiscal policy refers to government spending and taxation, and contractionary fiscal policy involves decreasing government spending and/or increasing taxes in order to address inflationary pressure. Expansionary fiscal policy, on the other hand, involves increasing government spending and/or decreasing taxes in order to stimulate economic activity.

The Fed Would Engage in ____ It Wanted to Address