Question

economy- circle the correct description of the economy- recession / inflation
fiscal policy- circle the correct action
o taxes- increase / decrease
o government spending- increase / decrease
o federal budget- surplus / deficit
monetary policy- circle the correct action
· reserve requirement- increase / decrease
· discount rate- increase / decrease
· open market- fed buys / fed sells

1. the rate of new homes being built is at an all - time high. the increase in demand has raised the cost of building materials and construction materials by 15%.

economy- circle the correct description of the economy- recession / inflation
fiscal policy- circle the correct action
o taxes- increase / decrease
o government spending- increase / decrease
o federal budget- surplus / deficit
monetary policy- circle the correct action
· reserve requirement- increase / decrease
· discount rate- increase / decrease
· open market- fed buys / fed sells

Explanation:

1. For the first part (Recession circled): In a recession, fiscal policy often involves cutting taxes to put more money in consumers' hands and increase government spending to stimulate the economy, resulting in a federal budget deficit. Monetary policy may lower reserve requirements, decrease the discount rate, and have the Fed buy securities to increase the money - supply.
2. For the second part (Inflation situation): When there is inflation (as demand for new homes has increased costs), fiscal policy may increase taxes to reduce disposable income and decrease government spending to reduce overall demand, aiming for a federal budget surplus. Monetary policy may increase reserve requirements, raise the discount rate, and have the Fed sell securities to reduce the money - supply.

Answer:

First part (Recession circled):

• Fiscal Policy:
• Taxes: DECREASE
• Government Spending: INCREASE
• Federal Budget: DEFICIT
• Monetary Policy:
• Reserve requirement: DECREASE
• Discount rate: DECREASE
• Open market: FED BUYS

Second part (Inflation situation):

• Fiscal Policy:
• Taxes: INCREASE
• Government Spending: DECREASE
• Federal Budget: SURPLUS
• Monetary Policy:
• Reserve requirement: INCREASE
• Discount rate: INCREASE
• Open market: FED SELLS