If There Is a Sudden Increase in Government Spending,which of the Following

question 139

Multiple Choice

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep output unchanged?

• A) Do nothing,since the self-correcting mechanism will adjust the economy
• B) Sell bonds in the open market
• C) Wait,since output usually does not change when government spending increases
• D) Decrease the required reserve ratio
• E) Buy bonds in the open market.

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