Question

If the economy was encountering high unemployment, unemployment could be reduced by: Buying government securities, reducing...

If the economy was encountering high unemployment, unemployment could be reduced by:

Buying government securities, reducing the reserve ratio, and raising the discount rate.

Selling government securities, raising the reserve ratio, and raising the discount rate.

Selling government securities, reducing the reserve ratio, and reducing the discount rate.

Buying government securities, reducing the reserve ratio, and reducing the discount rate.

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Answer #1

Answer : The answer is option D.

In case of high unemployment situation the unemployment can be reduced by increasing the money supply in the economy. Because if money supply increase in the economy then people get more money in their hand. As a result, people spend more money on consumption and investment which will increase the aggregate demand. If aggregate demand increase then producers will increase the production level which will increase the demand for labor. As a result, the employment level will increase which will reduce the unemployment.

The Central Bank increase the money supply in the economy by purchasing government securities, decreasing the reserve ratio and decreasing the discount rate.

Therefore, option D is correct.

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