When the Federal Reserve wishes to, in the long run, decrease inflation it

Question

Quizplus · Accepted Answer

When the Federal Reserve wants to decrease inflation in the long run, it needs to reduce the money supply in the economy. Selling bonds to banks reduces the amount of money they have to lend out to consumers, thereby reducing the overall money supply in the economy. This decrease in money supply leads to a decrease in aggregate demand, which decreases inflation. Therefore, the correct option is C.

When the Federal Reserve Wishes To, in the Long Run