Which of the following policies would be most likely to reduce the rate of inflation?
A) sale of government bonds by the Federal Reserve
B) a reduction in the discount rate
C) an increase in the size of the federal budget deficit
D) a reduction in the required reserves imposed on the banking system

Question

Quizplus · Accepted Answer

The sale of government bonds by the Federal Reserve would reduce the money supply, which would in turn reduce the demand for goods and services, thus reducing the rate of inflation. Choices B, C, and D would all increase the money supply, which would likely lead to an increase in the rate of inflation.

Which of the Following Policies Would Be Most Likely to Reduce