Which of the following actions by the Fed would lead to an increase in the money supply?
A) an increase in the differential between the discount rate and the federal funds rate
B) an increase in the required reserve ratio
C) an increase in tax rates
D) the purchase of government securities
Question 2
In the short run, a fiscal policy action that results in a reduction in the size of the budget deficit will cause
A) a reduction in real GDP with falling prices if the economy was below or at full employment.
B) an inflationary gap if the economy was initially operating below full employment.
C) an inflationary gap if the economy was initially operating at full employment.
D) an increase in real GDP with stable prices if the economy was below full employment.
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