According to the quantity theory of money, if the economy were facing inflation, the Federal Reserve Bank could combat it by:
A) decreasing the supply of money.
B) increasing the supply of money.
C) cutting taxes.
D) increasing taxes.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, inflation occurs when there is too much money in circulation relative to the amount of goods and services available for purchase. Therefore, to combat inflation, the Federal Reserve Bank would need to decrease the supply of money. This can be done through various measures such as raising interest rates, selling government bonds, or increasing reserve requirements for banks.

According to the Quantity Theory of Money, If the Economy