If the Fed was trying to reduce demand-pull inflation, it might:
A)sell government securities, lower reserve requirements and lower the discount rate.
B)sell government securities, raise reserve requirements and raise the discount rate.
C)sell government securities, lower reserve requirements and raise the discount rate.
D)buy government securities, lower reserve requirements and raise the discount rate.

Question

If the Fed was trying to reduce demand-pull inflation, it might:
A)​sell government securities, lower reserve requirements and lower the discount rate.
B)​sell government securities, raise reserve requirements and raise the discount rate.
C)​sell government securities, lower reserve requirements and raise the discount rate.
D)​buy government securities, lower reserve requirements and raise the discount rate.

Quizplus · Accepted Answer

To reduce demand-pull inflation, the Fed needs to decrease the money supply. This can be done through the sale of government securities, which pulls money out of circulation. Raising reserve requirements also reduces the money supply because banks have to hold more money in reserve and have less money to lend out. Raising the discount rate also reduces the money supply because it increases the cost of borrowing money from the Fed, making it less attractive to borrow and leading to a decrease in spending. Therefore, the best choice to reduce demand-pull inflation would be to sell government securities, raise reserve requirements, and raise the discount rate, which is option B.

If the Fed Was Trying to Reduce Demand-Pull Inflation, It