Which of the following will reduce inflation by decreasing the growth rate of the money supply?
A) A decrease in government spending.
B) An increase in the discount rate.
C) The purchase of securities in the open market by the Fed.
D) An increase in automatic stabilizers.

Question

Quizplus · Accepted Answer

An increase in the discount rate incentivizes banks to borrow less money from the Fed, which in turn reduces the amount of money circulating in the economy and slows the growth rate of the money supply. A decrease in government spending (choice A) may help reduce inflation indirectly by reducing demand in the economy, but it does not directly affect the money supply. Purchasing securities in the open market (choice C) actually increases the money supply and would therefore not reduce inflation. An increase in automatic stabilizers (choice D) may stabilize the economy but also does not directly affect the money supply.

Which of the Following Will Reduce Inflation by Decreasing the Growth