If inflation is a threat, then the Fed will be expected to engage in
A) expansionary monetary policy.
B) contractionary monetary policy.
C) policies to increase the money supply.
D) policies to lower the rate of interest.

Question

Quizplus · Accepted Answer

When inflation is a threat, the Fed will engage in contractionary monetary policy to decrease the supply of money and increase interest rates to reduce spending and slow down the economy. This can include actions such as raising reserve requirements for banks and increasing the federal funds rate.

If Inflation Is a Threat, Then the Fed Will Be