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13. The Fed (FRB) is said to be unwinding its balance sheet. This involves policy and will contribute to economic a) fiscal, contraction monetary, contraction monetary, expansion d) fiscal, expansion

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Answer #1

Central bank regulates money supply in the economy and control the inflation level in the economy through the Monitory Policy. There are various tools with the Fed in Monitory policy like Bank Rate, Open market operation, Reserve rate etc.

When Fed decreases the interest rates it makes borrowing cheaper and that will increase liquidity in the economy, opposite will happen when Fed increases the interest rate.

Fiscal policy refers to the government tax collection and expenditure.

So in this question correct answer should be C.

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