To stop a demand- pull inflation using monetary policy, you would recommend that the Fed
A) not increase the quantity of money.
B) purchase government bonds in the open market.
C) increase tax rates.
D) increase the quantity of money.

Question

Quizplus · Accepted Answer

To stop demand-pull inflation, the Fed should not increase the quantity of money as increased money supply leads to higher demand and thus inflation. Purchasing government bonds in the open market (Option B) would also increase the quantity of money, leading to higher demand and inflation. Increasing tax rates (Option C) would decrease consumer spending and lower overall demand, which could help combat inflation but may also have negative effects on the economy. Therefore, the best choice is not to increase the quantity of money (Option A).

To Stop a Demand- Pull Inflation Using Monetary Policy, You