Unemployment is on the rise though inflation is quite low. Gross Domestic Product is rising but more slowly than the goal rate. The Federal Reserve may buy government securities in open market operations in order to

A. increase the money supply and encourage economic growth.
B. decrease the money supply and encourage people to save in difficult times.
C. give consumers more money to open their own businesses.
D. force the banks to stop giving out loans in an uncertain economy.

And your answer is?

Im thinking A. Am i correct?

Yes, you're right.

increase the money supply and encourage economic growth.

To determine the correct answer, we need to understand the purpose and impact of open market operations conducted by the Federal Reserve.

Open market operations refer to the buying and selling of government securities (bonds) by the central bank, in this case, the Federal Reserve. The primary objectives of open market operations are to influence short-term interest rates and manage the money supply in the economy.

In the given scenario, we have two pieces of information to consider:

1. Unemployment is on the rise.
2. Gross Domestic Product (GDP) is rising but more slowly than the goal rate.

Considering these factors, we can now evaluate each answer choice:

A. Increase the money supply and encourage economic growth.
- This answer suggests that the Federal Reserve buys government securities to increase the money supply, which can help stimulate economic growth. Since the question mentions that unemployment is on the rise, this measure could indeed be a possible solution to boost economic activity and create more jobs.

B. Decrease the money supply and encourage people to save in difficult times.
- This answer suggests the opposite of the desired outcome mentioned in the question. It states that the Federal Reserve buys government securities to decrease the money supply, thereby encouraging people to save rather than spend. This measure is unlikely to be an effective response to rising unemployment and slow economic growth.

C. Give consumers more money to open their own businesses.
- This answer assumes that buying government securities will directly provide consumers with money to start businesses. While open market operations can influence the money supply indirectly, it does not directly provide money to consumers. Hence, this answer choice is incorrect.

D. Force the banks to stop giving out loans in an uncertain economy.
- This answer suggests a measure that goes against the intended goal of stimulating economic growth and reducing unemployment. If banks were forced to stop lending, it would further restrict economic activity, potentially exacerbating the problems of rising unemployment and slower GDP growth.

Considering the analysis above, we can conclude that option A - "increase the money supply and encourage economic growth" - is the most appropriate answer. By buying government securities in open market operations, the Federal Reserve can increase the money supply, which, in turn, can promote economic growth and help address the issue of rising unemployment.