Answer to Question #314087 in Macroeconomics for Davin

Question

To counteract the fact that an economy is performing above its potential, then to cool down the economy the central bank could:

 

a.  buy government securities/bonds on the open market and reduce the reserve requirement

 

b.  sell government securities/bonds on the open market and increase the reserve requirement

 

c.  buy government securities/bonds on the open market and raise the discount rate

 

d.  sell government securities on the open market and lower the discount rate

Answer 1

NO a. buy government securities/bonds on the open market and reduce the reserve requirement

 

NO b. sell government securities/bonds on the open market and increase the reserve requirement

 

NO c. buy government securities/bonds on the open market and raise the discount rate

 

YES d. sell government securities on the open market and lower the discount rate