If the Federal Reserve authorities were attempting to reduce demand-pull inflation,the proper policies would be to:

Question

Quizplus · Accepted Answer

Selling government securities would decrease the money supply and raise interest rates, which would reduce aggregate demand and inflationary pressure. Raising reserve requirements would also decrease the money supply and reduce lending, which would decrease aggregate demand. Raising the discount rate would increase the cost of borrowing and discourage investment and spending, further reducing demand. Finally, increasing the interest paid on reserves held at the Fed banks would encourage banks to hold onto their reserves rather than lending them out, also reducing the money supply and demand for goods and services. All these policies taken together would be effective in reducing demand-pull inflation.

If the Federal Reserve Authorities Were Attempting to Reduce Demand-Pull