Final answer:
To address high unemployment, the Federal Reserve would likely increase the money supply.
Step-by-step explanation:
If the Federal Reserve Bank wants to address high levels of unemployment in the economy, it would likely seek to increase the money supply. Doing so has a multifaceted impact on the economy. The Fed can increase the money supply by purchasing assets, which in turn injects money into the banking system. This usually results in banks having more funds to lend to businesses and consumers.
When more money is available for lending, interest rates typically fall. Lower interest rates make borrowing cheaper for consumers and businesses. As a result, consumers are more likely to spend money, and businesses are inclined to invest and expand, which can lead to job creation and, consequently, reduce unemployment. This boost in economic activity contributes to an increase in Gross Domestic Product (GDP).
Moreover, an increased money supply can lead to inflation. As spending and demand for goods and services rise, prices may go up, particularly if the rate of economic production cannot keep up with the increased demand. However, some inflation is often considered a sign of a growing economy, and central banks like the Fed aim for a healthy rate of inflation to ensure economic stability and growth.