Question

Suppose that an increase in the cost of resources increases the cost of production for the U.S. economy. If the Federal Reserve Bank chooses to combat inflation, which of the following would be the best course of action?

		Increase the reserve requirement
		Increase the income tax.
		Buy bonds
		Decrease the discount rate

Consider a country that exports good X. We have that______?

	A.	The domestic producers wins.
	B.	The domestic consumers wins.
	C.	The workers in the exporting industry lose.
	D.	The foreign consumers of the good lose.

Answer 1

Answer) An increase in the cost of resources increases the cost of production for the U.S. economy. If the Federal Reserve Bank chooses to combat inflation, buy bonds is the option. To combat inflation fed uses contractionary monetary policy to increase the money supply in an economy. And buying bonds would increase the money supply .

Hence option C is the correct answer.

2) A country that exports goods their domestic producers wins. For an export item, the domestic price rises to the world price, making consumers worse off. Domestic producers are better off because the higher price makes higher profits. Domestic production of the good rises.

Hence option A is the correct answer.