If a central bank wants to avoid high inflation in an economic boom it can
A)try to lower investment spending though open market purchases
B)raise interest rates in an effort to affect aggregate supply
C)lower bank reserves by buying government bonds
D)decrease the level of potential GDP by permanently restricting money supply growth
E)none of the above

Question

Quizplus · Accepted Answer

The options provided do not accurately describe measures a central bank would take to avoid high inflation during an economic boom. Central banks typically combat inflation by raising interest rates (which can reduce investment but is not directly aimed at affecting aggregate supply as in B) or selling government bonds to reduce bank reserves (opposite of what's described in C), not by the methods described in A, B, C, or D.

If a Central Bank Wants to Avoid High Inflation in an Economic