which of the following policy combinations would be most effective in combating inflation in the short…

which of the following policy combinations would be most effective in combating inflation in the short run?\n\na) monetary: sell bonds\nfiscal: increase government spending\n\nb) monetary: sell bonds\nfiscal: cut taxes\n\nc) monetary: buy bonds\nfiscal: cut government spending\n\nd) monetary: raise discount rate\nfiscal: increase taxes\n\ne) monetary: lower discount rate\nfiscal: increase taxes

which of the following policy combinations would be most effective in combating inflation in the short run?\n\na) monetary: sell bonds\nfiscal: increase government spending\n\nb) monetary: sell bonds\nfiscal: cut taxes\n\nc) monetary: buy bonds\nfiscal: cut government spending\n\nd) monetary: raise discount rate\nfiscal: increase taxes\n\ne) monetary: lower discount rate\nfiscal: increase taxes

Answer

Brief Explanations:

To combat inflation in the short - run, both monetary and fiscal policies should be contractionary. Selling bonds reduces the money supply in the economy (contractionary monetary policy). Raising the discount rate also reduces the money supply as borrowing becomes more expensive for banks (contractionary monetary policy). Increasing taxes reduces disposable income and thus aggregate demand (contractionary fiscal policy).

Answer:

D. Monetary: Raise discount rate, Fiscal: Increase taxes