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Assume an economy is picking up speed and the Fed is concerned that inflation may rise...

Assume an economy is picking up speed and the Fed is concerned that inflation may rise if growth continues at the current pace. It is likely to sell government securities to banks.(True or False) and why

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Answer #1

Assume an economy is picking up speed and the Fed is concerned that inflation may rise if growth continues at the current pace. It is likely to sell government securities to banks.

TRUE

By selling the government securities to banks, the Fed is taking the money out of the system. By doing so will reduce the amount of money supply, which helps in curbing the inflation. Now people will have less money to spend on the same quantity of goods, so the prices drop.

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