During 2001-2004, the Fed Injected Additional Reserves into the Banking

question 104

Multiple Choice

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?

• A) an increase in the rate of unemployment
• B) a reduction in the growth of employment
• C) an increase in aggregate demand and real GDP
• D) a reduction in the long-run rate of inflation

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Definitions:

Tax Revenue

The financial resources acquired by governments via taxation.

Payroll Taxes

Taxes imposed on employers and employees, calculated as a percentage of the salaries that employers pay to their staff.

Personal Income Taxes

Taxes imposed on individuals or households based on the income they earn over a certain period, often progressive in nature.

Federal Government Expenditure

The total amount of money spent by the federal government on various programs, services, and obligations.