If indicators like weak demand and falling commodity prices caused concern about deflation (falling prices), what could the Fed do to head off the deflationary threat?
A) increase the reserve requirements imposed on banks
B) buy bonds in order to expand the money supply
C) increase the discount rate
D) increase the national debt

Question

Quizplus · Accepted Answer

In order to head off the deflationary threat, the Fed could buy bonds in order to expand the money supply. By doing so, the Fed would increase the amount of money in circulation, which would stimulate demand and help prevent falling prices. Increasing reserve requirements imposed on banks or increasing the discount rate would have the opposite effect, potentially exacerbating the deflationary pressure. Increasing the national debt is not a viable solution as it does not directly impact the money supply or demand.

If Indicators Like Weak Demand and Falling Commodity Prices Caused