If there is currently an inflationary gap in the economy the Fed could work toward recovery through an open market sale of government securities.

Question

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When there is an inflationary gap, that means there is too much demand in the economy, which causes prices to rise. To counteract this, the Fed can conduct an open market sale of government securities. This involves selling government bonds to banks and investors, which reduces the amount of money that those buyers have to spend. This, in turn, reduces the overall demand in the economy, which can help to bring down prices and close the inflationary gap.

If There Is Currently an Inflationary Gap in the Economy