Your professor showed you an online video of the chair of the Federal Reserve Bank speaking to the American public. The message she is conveying indicates that Fed economists are worried about inflation and believe the best course of action would be to slow the economy. Which of the following policies is the Fed most likely to pursue?

Question

Quizplus · Accepted Answer

Restricting the money supply and increasing interest rates are contractionary monetary policy tools that the Fed could use to slow down the economy and curb inflation. Increasing taxes is a fiscal policy tool, and devaluing the dollar on international currency exchanges may actually worsen inflationary pressures by making imported goods more expensive. Decreasing interest rates would be an expansionary monetary policy that would stimulate the economy, which is not the objective in this scenario.

Your Professor Showed You an Online Video of the Chair