The Fed can increase the price level by conducting open-market
A) sales and raising the discount rate.
B) sales and lowering the discount rate.
C) purchases and raising the discount rate.
D) purchases and lowering the discount rate.

Question

Quizplus · Accepted Answer

The Fed can increase the price level by conducting open-market purchases and lowering the discount rate. Open-market purchases increase the money supply, which leads to an increase in aggregate demand and, ultimately, an increase in the price level. Lowering the discount rate makes it cheaper for banks to borrow from the Fed, which also increases the money supply and aggregate demand. These policies are typically used to combat deflation or stimulate economic growth.

The Fed Can Increase the Price Level by Conducting Open-Market