Which of the following actions would the Fed take to fight inflation?

Question

raise taxes

increase government spending

reduce the money supply

increase the money supply

Answer 1

To fight inflation, the Federal Reserve (the Fed) would typically take actions that reduce the money supply. This can be done through several mechanisms, such as increasing interest rates or selling government securities. By reducing the money supply, the Fed aims to decrease consumer spending and investment, which can help lower inflationary pressures.

Therefore, the correct action from the options provided would be:

reduce the money supply