If the inflation rate starts to increase, a central bank most likely will
A)try to stimulate aggregate supply through open market purchases
B)change short-term interest rates though open market sales
C)increase short-term interest rates by buying government bonds
D)send signals to financial markets about upcoming open market purchases
E)ask banks to ration credit

Question

Quizplus · Accepted Answer

When inflation starts to increase, central banks often change short-term interest rates through open market sales. This means that the central bank sells government bonds to banks, which decreases the amount of money that banks have available to lend out to consumers. This decrease in available money can help to decrease inflation by decreasing demand for goods and services. Increasing short-term interest rates can also encourage saving and discourage borrowing, which can help to decrease inflation.

If the Inflation Rate Starts to Increase, a Central Bank