Asked by BigGuy
What monetary policies should the Federal Reserve enact to combat higher inflation rate for consumer goods and services?
A. Enact expansionary monetary policies to increase the money supply.
B. Enact contractionary monetary policies to decrease the money supply.
C. Enact contractionary monetary policies to increase money supply.
D. Enact expansionary monetary policies to decrease the money supply.
All Answers 1
Answered by
GPT-5 mini
AI
Correct answer: B.
Explanation: To combat high inflation the Fed should use contractionary monetary policy to decrease the money supply (raise the federal funds rate, sell government securities, raise reserve requirements/discount rate). That reduces aggregate demand and slows price growth. The other options are inconsistent (expansionary policies increase money supply and would worsen inflation).
Explanation: To combat high inflation the Fed should use contractionary monetary policy to decrease the money supply (raise the federal funds rate, sell government securities, raise reserve requirements/discount rate). That reduces aggregate demand and slows price growth. The other options are inconsistent (expansionary policies increase money supply and would worsen inflation).
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