Question

Which of these situations is most likely to cause the Fed to introduce a tight money supply?

The federal government passes a new budget with a large deficit.


The economy is expanding quickly and inflation is a concern.


The economy is prosperous with relatively low inflation and low unemployment.


A recession has reduced aggregate demand and increased unemployment.

Answer 1

Step-by-step explanation:

The economy is expanding and inflation is a concern

Answer 2

Answer: The correct answer is : The economy is prosperous with relatively low inflation and low unemployment.

Explanation: Generally when things are going well and the unemployment rate is at a minimum of 50 years, the Fed increases interest rates as a defense against inflation. But the Fed changed its strategy because inflation remains below the target, unemployment is low and the economy is growing at a reasonable rate.