If the economy is in an inflationary boom, 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.
E) restrict bank lending by lowering the federal funds rate.

Question

Quizplus · Accepted Answer

To combat an inflationary boom, the Fed would likely restrict bank lending by selling government securities, which reduces the money supply and increases interest rates, thereby cooling off economic activity.

If the Economy Is in an Inflationary Boom, the Fed