If the Fed seeks to constrain inflation,it would be most likely to
A)sell government bonds to banks in order to reduce the amount of loanable funds.
B)buy government bonds from banks in order to reduce the amount of loanable funds.
C)raise taxes in order to reduce the money supply.
D)cut the required reserve ratio in order to reduce the amount of excess reserves banks have to loan out.

Question

Quizplus · Accepted Answer

Selling government bonds to banks reduces the amount of loanable funds available, which decreases the amount of money in circulation and helps to constrain inflation. Buying government bonds from banks would increase the amount of loanable funds, and cutting the required reserve ratio would increase the amount of excess reserves banks have to loan out, both of which could lead to inflation. Raising taxes in order to reduce the money supply could also help constrain inflation, but it is not a tool directly controlled by the Fed.

If the Fed Seeks to Constrain Inflation,it Would Be Most