if the fed wants to control inflation, it will try to get the supply of credit to fall and increase its cost by implementing what type of policy?

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15-12-2022
Business

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if the fed wants to control inflation, it will try to get the supply of credit to fall and increase its cost by implementing what type of policy?

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aashvi1 aashvi1 · Answer 1 · 2022-12-20T06:27:47-05:00

To combat inflation, the central bank's one main instrument is raising interest rates, which it does by increasing the cost of borrowing money in order to reduce demand for goods and services. The success or failure of the Fed's actions won't be known to economists for some time.

What are the techniques for reducing inflation?

Controlling the amount of money in the economy is an important monetary approach to combat inflation. The demand for things will decline and prices will fall if the money supply declines. When the government removes particular coins or paper money from circulation, this is another technique to reduce the amount of money in circulation.

How does the Fed control the money supply and inflation?

The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy.

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