Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities from $600 billion to $580 billion. This indicates that the Fed was
A) seeking to reduce the money supply to decrease inflation.
B) trying to force Congress to decrease taxes.
C) expanding the money supply and stimulating employment.
D) expanding the money supply, even though the existing inflation suggested a restrictive policy would be more appropriate.

Question

Quizplus · Accepted Answer

When the Fed reduces its holdings of U.S. securities, it decreases the money supply, which could lead to a decrease in inflation. Therefore, the Fed was seeking to reduce the money supply to decrease inflation.

Suppose That During a Period of Inflation, the Fed Reduced