The Fed decreases the quantity of money to counteract
A)a recessionary gap.
B)a federal budget deficit.
C)positive net exports.
D)an inflationary gap.
E)a rise in the unemployment rate.

Question

Quizplus · Accepted Answer

Decreasing the quantity of money is a tool used by the Federal Reserve to address an inflationary gap, in which the economy is producing above its potential and there is upward pressure on prices. By reducing the amount of money available, the Fed aims to decrease spending and slow down the economy, hopefully bringing it back to a sustainable level of production and price stability.

The Fed Decreases the Quantity of Money to Counteract