Question

Which of the following combinations of actions by Congress and the Federal Reserve would be most effective in stimulating an economy that is operating below full employment? An increase in the money supply when personal income taxes decrease. An increase in the money supply when personal income taxes increase. An increase in the money supply when government spending decreases. An increase in interest rates when government spending increases. A decrease in interest rates when personal income taxes increase.

Answer 1

The most effective combinations of actions by Congress and the Federal Reserve in stimulating an economy that is operating below full employment is An increase in the money supply when personal income taxes decrease.

Step-by-step explanation:

The congress and Federal reserve can stimulate the economy with the applicable fiscal policies especially when the economy is operating below full employment.

Expansionary fiscal policy is a tool used by congress and Federal Reserve to increase money supply in circulation by reducing tax rates, this is will create more disposable income in households which will lead to increase in demand. Once demand increases, the ripple effect on the economy is increase in employment opportunities.

Therefore, the most effective combinations of actions by Congress and the Federal Reserve in stimulating an economy that is operating below full employment is an increase in the money supply when personal income taxes decrease.