Question

If you were a member of the Federal Reserve board of​ governors, and you saw inflation was beginning to careen out of​ control, which of the following actions would you MOST likely​ recommend?

A.

Lower the reserve requirement.

B.

Buy U.S. government bonds in open market operations.

C.

Implement fiscal policy.

D.

Lower the discount rate.

E.

Sell U.S. government bonds in the open marke

Answer 1

Question:

Answer: Inflation getting out of control means that there is an excess money supply in the economy due to which there is an excess demand.

To control the inflation Federal Reserve board of governors will sell U.S government bonds in the open market which will absorb the excess money supply from the economy.

Lowering reserve requirement will increase money supply in the economy and will add to increase the inflation.

Buying government bonds in the open market will also increase money supply in the economy.

Federal Board can not implement fiscal policy as it is controlled by the government.