39 Intereex * Electricia × PrairieVi × Course:FM. Assignm × W 2123-f17 × & Slide

Question

39 Intereex * Electricia × PrairieVi × Course:FM. Assignm × W 2123-f17 × & Slides chrome-extension://bpmcpldpdmajfigpchkicefoigmkfalc/views/app.html docx ools Help a Normal , Times New 12 , Blu .. a) cut in personal (nousenoia) tax rates 4. Suppose that unemployment is very low in the U.S. and inflation is very high. You are President of the United States. Which policy do you recommend that the U.S. Congress pass as a new bill for you to sign into law? (Pick one) a) Open market purchase of government securities b) Reduction in government spending c) Increase in the required reserve ratio d) Cut in personal (household) tax rates You are Chair of the Federal Reserve System. Which policy do you recommend that the Board of Governors approve? (Pick one) a) Open market purchase of government securities b) Reduction in government spending c) Increase in the required reserve ratio d) Cut in personal (household) tax rates

Explanation / Answer

IF I AM THE PRESIDENT OF UNITED STATES:

THEN I WILL OPT FOR OPTION 3 I.E INCREASE IN REQUIRED RESERVE RATIO.REASON BEING:

1.IT WILL HELP IN CONTAINING THE SOARING RATE OF INFLATION.AS THE CREDIT CREATING CAPACITY OF BANKS WILL BE REDUCED IT PUT BREAKS ON BANKS TO GIVE LOANS TO INDIVIDUALS INDISCRIMINATELY.ULTIMATELY THE SUPPLY OF MONEY IN THE ECONOMY WILL GET REDUCED AND INFLATION WILL GET UNDER CONTROL.

2.AS A PRESIDENT I WILL NOT RECOMMEND 2 BECAUSE THE A REDUCTION IN GOVT SPENDING MAY BE RELATED TO ELECTION PROMISES WHICH MAY GENERATE HATE FROM THE PUBLIC FOR NOT BEING ABLE TO STAND UP TO THE PROMISES, EVEN TOUGH 2 MAY BE AS EFFECTIVE AS 3.A CUT IN PERSONAL HOUSEHOLD TAX MAY CREATE MORE INFLATIONARY PRESSURE IN THE ECONOMY, SO IT HAS T BE AVOIDED.SAME IS THE CASE WITH OPTION 1.

IF I AM THE CHAIRMAN OF THE FEDERAL RESERVE:

THEN I WILL OPT FOR OPTION 2(REDUCTION IN GOVT.SPENDING).REASON BEING:

1.A REDUCTION IN GOVT. SPENDING WILL FOR SURE REDUCE THE SUPPLY OF MONEY IN THE ECONOMY.WHICH IN TURN MAY TAKE CARE OF THE HIGH RATE OF INFLATION IN THE MARKET.SINCE THE UNEMPLOYMENT RATE IS LOW, A REDUCTION IN THE GOVT.SPENDING MAY NOT HAVE AN EFFECT ON THAT.

2.I WILL NOT RECOMMEND 3 BECAUSE OPTION 2 IS MORE EFFECTIVE IN DEALING WITH INFLATION.1 AND 4 ARE OUT OF CHOICE.

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