If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government
A)budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements.
B)budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements.
C)budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements.
D)budget surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements.

Question

Quizplus · Accepted Answer

To combat demand-pull inflation, the government should aim to reduce aggregate demand. This can be achieved through a budget surplus (reducing government spending or increasing taxes), selling securities in the open market (to reduce money supply), increasing the discount rate, and raising reserve requirements (to decrease lending and spending).

If Severe Demand-Pull Inflation Was Occurring in the Economy, Proper