Which list represents monetary policy actions that are consistent with one another?
A) buy government bonds, raise reserve requirements, raise the discount rate
B) sell government bonds, raise reserve requirements, lower the discount rate
C) sell government bonds, raise reserve requirements, raise the discount rate
D) buy government bonds, lower reserve requirements, raise the discount rate

Question

Quizplus · Accepted Answer

In order to control inflation, the central bank should sell government bonds to decrease the money supply, raise reserve requirements to decrease money creation by banks, and raise the discount rate to make borrowing more expensive. The combination of selling bonds and raising reserve requirements both decrease the money supply, while raising the discount rate helps to control inflation by making borrowing more expensive. Buying government bonds and lowering reserve requirements would increase the money supply, which could potentially lead to inflation. Lowering the discount rate would also stimulate borrowing and potentially increase inflation.

Which List Represents Monetary Policy Actions That Are Consistent with One