If the economy is inflationary, the Fed would most likely:
A) encourage banks to provide loans by buying government securities.
B) encourage banks to provide loans by raising the discount rate.
C) encourage banks to provide loans by selling government securities.
D) restrict bank lending by selling government securities.

Question

Quizplus · Accepted Answer

In an inflationary economy, the Federal Reserve (Fed) would aim to restrict bank lending to curb the money supply and reduce inflation. Selling government securities is a method used by the Fed to absorb cash from the banking system, making less money available for banks to lend, which can help in controlling inflation.

If the Economy Is Inflationary, the Fed Would Most Likely