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1) Suppose the Federal Reserve wants to decrease the rate of inflation in the U.S. What would be a good policy?a) decrease the discount rateb) increase taxesc) buy government bonds on the open marketd) sell government bonds on the open market2) Let's say th economy is in full-employment equilibrium. Then an increase in investment spending causes a positive demand shock to occur. What should the Federal Reserve do?a) Reduce the federal funds rate.b) Undertake a contractionary monetary policy to restore the economy to its full employment equilibriumc) Undertake an expansionary monetary policy to bring output back to full employmentd) Nothing b/c of the conflict between the twin goals of price stability and full employment when demand shocks occur.3) Which of the following is not part of the U.S. government's mandatory spending budgeta) social securityb) medicarec) interest on the national debtd) national defense
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