In response to an inflationary gap, the Fed

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In response to an inflationary gap, the Fed aims to control inflation by reducing aggregate demand. One way to do this is by selling U.S. government securities, which reduces the money supply and increases interest rates, ultimately reducing consumer and business spending. This is known as contractionary monetary policy. Lowering the federal funds rate by buying government securities or waiting for the price level to fall before acting would not be effective ways to address an inflationary gap.

In Response to an Inflationary Gap, the Fed