which statements describe how the fed responds to high inflation? check all that apply.\nit charges banks…

which statements describe how the fed responds to high inflation? check all that apply.\nit charges banks more interest.\nit pays banks less interest.\nit sells more securities.\nit decreases the money supply.\nit increases the money supply.

which statements describe how the fed responds to high inflation? check all that apply.\nit charges banks more interest.\nit pays banks less interest.\nit sells more securities.\nit decreases the money supply.\nit increases the money supply.

Answer

Brief Explanations:

To combat high inflation, the Federal Reserve (Fed) uses contractionary monetary policy. Charging banks more interest (via the discount rate) discourages borrowing, reducing money supply. Selling more securities (open - market operations) takes money out of the system, decreasing money supply. Decreasing the money supply lowers spending and inflation. Paying banks less interest on reserves is also a tool to encourage lending less, but the main actions here are charging more interest, selling more securities, and decreasing money supply. Paying less interest, charging more interest, selling more securities, and decreasing money supply are correct responses. Increasing money supply would worsen inflation, so it's incorrect.

Answer:

A. It charges banks more interest. C. It sells more securities. D. It decreases the money supply. B. It pays banks less interest. (This is also a valid action as paying less interest on reserves can encourage banks to lend less, reducing money supply. So the correct options are A, B, C, D)