The main tool that the Federal Reserve uses to conduct monetary policy is
A) discount policy.
B) open market operations.
C) acting as the lender of last resort.
D) check clearing.
E) setting reserve requirements.
Question 2
Suppose a recession occurs as a result of a supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would
A) quickly result in a new, higher level of real GDP and a permanently lower price level.
B) bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly.
C) bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.
D) bring real GDP back to potential GDP more quickly but would result in a permanently higher price level.
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