In order to combat inflation, the Fed will _ the federal funds rate thereby _ _ the quantity of money.

Question

Quizplus · Accepted Answer

In order to combat inflation, the Fed will raise the federal funds rate, thereby decreasing the quantity of money. When the Fed raises the federal funds rate, borrowing becomes more expensive for banks, which in turn reduces the amount of money available for lending, which then leads to a decrease in the quantity of money in circulation. This decrease in the quantity of money helps to combat inflation by reducing the overall demand for goods and services.

In Order to Combat Inflation, the Fed Will _ the Federal