If the Federal Reserve is trying to reduce inflationary pressure, it should:
A) increase the discount rate.
B) increase the reserve requirement.
C) sell securities to banks and dealers.
D) all of the above.

Question

Quizplus · Accepted Answer

All the options listed are tools the Federal Reserve can use to reduce inflationary pressure. Increasing the discount rate makes borrowing more expensive for banks, which can reduce the money supply. Increasing the reserve requirement reduces the amount of funds banks can lend out, also decreasing the money supply. Selling securities to banks and dealers pulls money out of the economy, reducing liquidity and the money supply, which can help in reducing inflation.

If the Federal Reserve Is Trying to Reduce Inflationary Pressure