Question

read the scenario and then answer the question.
beginning in 2021, the united states faced high inflation as prices for groceries, gas, and housing climbed much faster than wages. families across the country struggled to keep up with the rising cost of living. to help slow inflation, the federal reserve used monetary policy by raising the reserve requirement - the percentage of deposits that banks must keep and cannot loan out. when the reserve requirement increased, banks had less money available to lend to businesses and consumers, which reduced the overall money supply. as borrowing became more difficult, spending slowed, and inflation began to ease. supporters argued that this policy helped stabilize prices and control inflation, while critics claimed that limiting bank lending hurt small businesses, slowed economic growth, and could lead to higher unemployment.
based on this scenario, which two statements best critique the effectiveness of monetary policy during this period?
contractionary monetary policy stabilized prices but made it harder for businesses and consumers to borrow money.
contractionary monetary policy raised the reserve requirement to limit lending, which helped reduce inflation but slowed economic growth.
expansionary monetary policy lowered the reserve requirement to decrease inflation and reduce consumer spending.
contractionary monetary policy reduced inflation without creating any negative side effects for workers or families.
expansionary monetary policy raised the reserve requirement to increase the money supply.

Explanation:

• Contractionary monetary policy (raising reserve requirement) was used.
• It stabilized prices (supporters' view) but had negative impacts like making borrowing hard (as banks had less to lend), slowing economic growth (critics' view).

Answer:

• Contractionary monetary policy stabilized prices but made it harder for businesses and consumers to borrow money.
• Contractionary monetary policy raised the reserve requirement to limit lending, which helped reduce inflation but slowed economic growth.