Your professor showed you an Internet video of the chair of the Federal Reserve Bank speaking to the American public.The message he is conveying indicates that Fed economists are worried about inflation and believe the best course of action would be to slow the economy.Which of the following policies is the Fed most likely to pursue?
A)Increase taxes.
B)Decrease interest rates.
C)Restrict the money supply and increase interest rates.
D)Devalue the dollar on international currency exchanges.

Question

Quizplus · Accepted Answer

To slow the economy and combat inflation, the Fed is likely to pursue measures to restrict the money supply, which can be done through increasing interest rates. This makes borrowing more expensive, which in turn reduces consumption and investment, slowing down economic growth. Therefore, choice C is the best option. Increasing taxes would also decrease aggregate demand and slow the economy, but it is not a tool in the Fed's direct control. Decreasing interest rates and devaluing the currency would have the opposite effect, as they would stimulate the economy and potentially exacerbate inflation.

Your Professor Showed You an Internet Video of the Chair