Question

In response to rising inflation, the Federal Reserve may sell government securities in open market operations in order to:

increase the money supply and encourage economic growth.
decrease the money supply and encourage people to save in difficult times.
give consumers more money to open their own businesses.
force the banks to stop giving out loans in an uncertain economy.

Answer 1

decrease the money supply and encourage people to save in difficult times.

Step-by-step explanation:

Monetary policy concerns the control of the money supply in an economy and, consequently, the interest rate. It is the main instrument for curbing inflation. In an inflationary economy, by selling bonds, the Fed will be decreasing the money supply and thereby increasing the interest rate. Thus, when selling bonds, consumption becomes more costly, discouraging people's consumption, helping to reduce inflation.

Answer 2

The rational answer would be: A. increase the money supply and encourage economic growth.