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

Question

Quizplus · Accepted Answer

To stop a demand-pull inflation using monetary policy, the Fed should not increase the quantity of money. This is because increasing the quantity of money would only exacerbate the inflationary pressures by further increasing demand. Instead, the Fed may choose to tighten monetary policy by increasing interest rates or selling government bonds to reduce the money supply, which can help slow down inflation by reducing demand in the economy. Increasing tax rates would be a fiscal policy measure, which is outside the scope of monetary policy.

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