Question

Please help me with my Economics quiz!!


Suppose the economy is operating below its full employment level. The Fed


A. is powerless to affect either aggregate demand or aggregate supply. Fiscal policy is needed.


B. can move the economy toward the full employment level by expanding the money supply to increase aggregate supply.


C. can move the economy toward the full employment level by expanding the money supply to increase aggregate demand and to hold prices constant.


D. can move the economy toward the full employment level by expanding the money supply to increase aggregate demand through both its direct and its indirect effects.

Answer 1

Answer:

C. can move the economy toward the full employment level by expanding the money supply to increase aggregate demand and to hold prices constant.

Explanation: If the economy is operating below its full-employment level the Federal government can move the economy towards full employment level by the use of the monetary policy.

The usual goals of monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages. ... The Fed uses three main instruments in regulating the money supply: open-market operations, the discount rate, and reserve requirements.