If the Fed's policy is contractionary,it will
A)use open market operations to buy Treasury bills.
B)use open market operations to sell Treasury bills.
C)lower the discount rate.
D)lower the reserve requirement.

Question

Quizplus · Accepted Answer

If the Fed's policy is contractionary, it means that it aims to reduce the money supply in the economy to control inflation. To achieve this, it can use open market operations to sell Treasury bills, which will reduce the amount of money available in the market since buyers will need to pay for the bills. Lowering the discount rate or reserve requirement would have an expansionary effect, increasing the money supply, which is contrary to the goal of contractionary policy. Buying Treasury bills would also be an expansionary policy.

If the Fed's Policy Is Contractionary,it Will