When the economy is at full employment and inflation is present, ...

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When the economy is at full employment and inflation is present, the government could create a surplus budget by cutting its own spending and raising taxes. The Fed would be expected to:
 a. reduce the required reserve ratio, increase the discount rate, and buy securities on the open market.
  b. reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market.
  c. reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market.
  d. increase the required reserve ratio, reduce the discount rate, and sell securities on the open market.
  e. increase the required reserve ratio, increase the discount rate, and sell securities on the open market.

Question 2

When a recession hits, we would expect the government to run a budget deficit by raising the level of its spending or by cutting taxes, or perhaps both. The Fed would be expected to:
 a. reduce the required reserve ratio, increase the discount rate, and buy securities on the open market.
  b. reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market.
  c. reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market.
  d. increase the required reserve ratio, reduce the discount rate, and sell securities on the open market.
  e. increase the required reserve ratio, increase the discount rate, and sell securities on the open market.

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Answer to Question 1

e

Answer to Question 2

c