Question

Which statements describe how the Fed responds to high inflation? Check all that apply:

Answer 1

Answer:

option A, C and D

Explanation:

In response to high inflation Fed takes different steps like fed start charging bank more interest, they start selling more securities and decrease the money supply.

To compensate for the inflation  Fed sells more securities which the bank has to buy so, the liquidity of the bank decreases as the money of the bank is spent on buying the securities.

Buying securities will decrease the money supply.

Buying and selling the securities helps the government to maintain the rate of growth of the country's money supply to control inflation.

Hence, the correct answer is option A, C, and D