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IRISSAK [1]
3 years ago
14

If the economy is at full employment and the Federal Reserve undertakes a policy of increasing the money supply at a constant ra

te of 6% while the production of goods and services is at 2% what would you expect to happen?
a. interest rates will go down and employment will increase

b. the government budget will run a surplus

c. inflation

d. the government budget will run a deficit and the Federal Reserve will monetize the debt.
Business
2 answers:
Korvikt [17]3 years ago
7 0
Think through this one:
--The bottom two answers concern budget deficits or surpluses, but the question doesn't tell you anything about tax revenue vs. government spending. So neither of those answers applies.
--The first answer is impossible because the economy is already at full employment, so employment can't increase
--Inflation is the answer. Increasing the money supply by 6% while output is increasing by only 2% means that prices will rise: the money supply is increasing faster than output.
Anastaziya [24]3 years ago
3 0
The answer to this would be Inflation. Or C as the answer.
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