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Posted 7 months ago
The nation of Eldemar is experiencing rapid inflation, which the government is taking fiscal policy actions to counteract. However, the traitor Ulfang is the chairperson of the central bank of Eldemar and is planning to undermine the government's efforts.
Which of the following is a monetary policy action that Ulfang (as chair of the central bank) could use to block the government's efforts to control inflation?
Choose 1 answer:
(A) Buy bonds
(B) Sell bonds
(C) Increase the reserve ratio
(D) Increasing taxes
(E) Lowering government spending
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
Identify the goal of the government's fiscal policy, which is to counteract rapid inflation
step 2
Determine the monetary policy action that could undermine the government's efforts
step 3
Recognize that buying bonds increases the money supply, which can lead to lower interest rates and higher inflation
step 4
Evaluate the options:
- (A) Buy bonds: Increases money supply, counteracts inflation control.
- (B) Sell bonds: Decreases money supply, supports inflation control.
- (C) Increase the reserve ratio: Decreases money supply, supports inflation control.
- (D) Increasing taxes: Fiscal policy, not monetary.
- (E) Lowering government spending: Fiscal policy, not monetary
A
Key Concept
Monetary policy action to counteract fiscal policy
Explanation
Buying bonds increases the money supply, which can undermine efforts to control inflation by lowering interest rates and increasing inflation
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