Should the government use monetary and fiscal policy in an effort to stabilize the economy?

[Sparkles]

Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations.

This graph shows the Unites States economy in a recession in May 2010. The unemployment rate is 8% and inflation is 2%. AD is aggregate demand, SRAS is short-run aggregate supply, and LRAS is long-run aggregate supply.




1.1. Which of the following represents an example of an expansionary monetary policy the government could undertake?



A. The Federal Open Markets Committee (FOMC) buys bonds.

B. The Federal Reserve raises the reserve requirement.

C. The federal government increases spending on social programs.

D. Congress eliminates the tax on interest and dividends.

[Xavi Alonso]

C

[Ace]

A. The Federal Open Markets Committee (FOMC) buys bonds

When it buys bonds it writes a check on itself, effectivley creating money out of thin air.