The Federal Reserve fights inflation via open market operations,the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

Question

Quizplus · Accepted Answer

To fight inflation, the Federal Reserve will sell government securities on the open market. This decreases the supply of reserves, shifting the supply of reserves curve leftward. A decrease in reserves also reduces the amount of money banks can create through the money multiplier effect, leading to a leftward shift in the supply of money curve. Together, these shifts reduce the quantity of money in circulation and help combat inflation.

The Federal Reserve Fights Inflation Via Open Market Operations,the Supply