Assume that the government implements a deficit-reduction policy that results in changes in aggregate income and output. Then the Federal Reserve engages in monetary policy actions that reverse the changes in income and output caused by fiscal policy action. Which of the following sets of changes in taxes, government spending, the required reserve ratio, and the discount rate is most consistent with these policies?
(a) Increase / Increase / Decrease / Increase
(b) Increase / Decrease / Decrease / no change
(c) Increase / Decrease / Increase / Decrease
(d) Decrease / Increase / no change / Increase
(e) Increase / Decrease / Decrease / Increase
Ans: (b) Increase / Decrease / Decrease / no change
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Real GDP in a given year is
A) GDP valued in the prices of the base year. B) GDP valued in the prices of that year. C) always less than nominal GDP for the same year. D) GDP adjusted for the value of intermediate goods.
Autonomous tightening of monetary policy involves ________
A) raising interest rates and shifting the MP curve to the right B) lowering interest rates and shifting the MP curve to the left C) raising interest rates and shifting the MP curve to the left D) lowering interest rates and shifting the MP curve to the right E) none of the above