Given the following information about the economy, determine the appropriate economic policy as well as the expected impact of the policy: Percent change in GDP: 7.9% Unemployment rate: 2.7% Inflation: 5.3% a The Fed should reduce the money supply by selling bonds, which will decrease the monetary base and increase the Fed Funds Rate. General interest rates will rise, and the AD curve will shift to the left. b The Fed should reduce the money supply by buying bonds, which will decrease the monetary base and increase the Fed Funds Rate. General interest rates will rise, and the AS curve will shift to the right. c The Fed should increase the money supply by buying bonds, which will increase the monetary base and decrease the Fed Funds Rate. General interest rates will remain unchanged. d The Fed should do nothing as the economy is in an expansion.
Given the following information about the economy, determine the appropriate economic policy as well as the expected impact of the policy: Percent change in GDP: 7.9%
a
The Fed should reduce the money supply by selling bonds, which will decrease the monetary base and increase the Fed Funds Rate. General interest rates will rise, and the AD curve will shift to the left.
b
The Fed should reduce the money supply by buying bonds, which will decrease the monetary base and increase the Fed Funds Rate. General interest rates will rise, and the
c
The Fed should increase the money supply by buying bonds, which will increase the monetary base and decrease the Fed Funds Rate. General interest rates will remain unchanged.
d
The Fed should do nothing as the economy is in an expansion.
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