The Fed dealt with high inflation in the 1980s by:
A) reducing the money supply and causing aggregate demand to fall.
B) raising the money supply and causing aggregate demand to rise.
C) reducing the money supply and causing aggregate demand to rise.
D) raising the money supply and causing aggregate demand to fall.

Question

Quizplus · Accepted Answer

The Fed dealt with high inflation in the 1980s by reducing the money supply and causing aggregate demand to fall. This is because high inflation is often caused by too much money chasing too few goods (excess demand), and by reducing the money supply, the Fed can reduce aggregate demand and ease inflationary pressure. This is what the Fed did in the 1980s when it raised interest rates and reduced the money supply, eventually bringing inflation down from double digits to more manageable levels.

The Fed Dealt with High Inflation in the 1980s By