If the Fed fears inflation,it would be most likely to
A)buy additional bonds in order to reduce the federal funds rate.
B)buy additional bonds in order to increase the federal funds rate.
C)sell additional bonds in order to increase the federal funds rate.
D)sell additional bonds in order to reduce the federal funds rate.

Question

Quizplus · Accepted Answer

If the Fed fears inflation, it would want to reduce the amount of money in circulation to control prices. The Fed can do this by selling bonds to banks, which decreases the money supply and increases the federal funds rate. This increases the cost of borrowing and slows down economic activity, which can reduce inflationary pressures. Therefore, the correct choice is C, sell additional bonds in order to increase the federal funds rate.

If the Fed Fears Inflation,it Would Be Most Likely to