AP Macroeconomics 5.1: Policy Mix

Choose coordinated fiscal and monetary policies to address recession, inflation, output, employment, and interest rates.

[Maximum number: 1]

The country of Arden has a banking system with limited reserves. Arden's economy falls into a recession, and its government and central bank each implement policies to restore full employment. Which of the following combinations of fiscal and monetary policy would be most effective to achieve this objective?

A

Arden's government increases taxes on businesses, and its central bank decreases the required reserve ratio.

B

Arden's government increases spending, and its central bank sells bonds on the open market.

C

Arden's government increases the minimum wage, and its central bank increases the required reserve ratio.

D

Arden's government decreases unemployment benefits, and its central bank buys bonds on the open market.

E

Arden's government decreases personal income tax rates, and its central bank buys bonds on the open market.

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POL-1.F—Explain (using graphs as appropriate) the effects of combined fiscal and monetary policy actions question 1