Question

Which of these would the Federal Reserve consider doing if it wanted to attempt to keep inflation in control?

Answer 1

Answer:

raise interest rates

Explanation:

Inflation is the continuous and widespread rise in the prices of goods and services in an economy. This is a monetary phenomenon, caused by the excess of currency in circulation in the economy. When demand is very hot and money circulates faster, prices tend to rise, causing inflation. Rising inflation decreases the purchasing power of money, as with each inflationary process, more money will be needed to buy the same good.

The agency responsible for controlling inflation is the Federal Reserve, which has monetary policy as a tool for inflationary containment. Anti-inflationary monetary policy can occur in two ways. The main one is the interest rate increase, which aims to discourage consumption and stimulate investments. When interest rates rise, economic agents have an incentive to save. As a result, consumption decreases and the inflation rate decreases. Another way to curb inflation is by reducing the amount of paper money in circulation. This is done by selling government bonds. Thus, when the Fed sells bonds, it withdraws outstanding money from the economy, reducing economic transactions and consumption.