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

It charges banks more interest.

It sells more securities.

It decreases the money supply.

A high inflation scenario can be seen as one in which there is too much money chasing too few goods and services.  

In cases of high inflation, the Fed can resort to some measures in order to decrease the money supply in the economy.

The Fed can charge the banks more interest at the discount window. This will force the banks to increase their lending rates, but only to a certain extent. Banks approach the fed discount window to borrow for a very short when they fall short of funds to lend. When the Fed discount rate rises, the interest rates loans made from these funds will also rise, leading to a decrease in the demand for loans. This causes a dip in the amount of money circulating in the economy.

The Fed can sell more securities so that the banks are forced to spend some of the excess money in order to buy these securities.  This also results  in a decrease in the amount of money supply in the economy.

The statements which describe how the Fed responds to high inflation:

1. It charges banks more interest.

2. It sells more securities.

3. It decreases the money supply.

A high inflation is a situation in which there is too more money supply and very few goods and services in the market. Therefore this will create the situation of high demand as per the supply.    

The Fed can charge the banks more interest. This will make the banks to increase their lending rates, but only to a certain extent. When the discount rate rises, the interest rates of these loans will also rise, leading to reduce in the demand for loans. This causes a reduction in the money circulating in the economy.

Fed can sell securities, so the banks are forced to spend some money in buying these securities.  This will results reduction in the amount of money supply in the economy.

Further explanation:

Inflation:

Inflation refers to decrease in the money supply and increase in the demand as compared to the supply. The government reduces the money supply so as to reduce the high inflation rate because, if there will be more money in the economy, supply will automatically tends to get reduced.

Thus, the statements which describe how the Fed responds to high inflation:

1. It charges banks more interest.

2. It sells more securities.

3. It decreases the money supply.

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Answer details:

Grade: High School

Subject: Economics

Chapter: Inflation

Keywords: Which statements describe how the Fed responds to high inflation, Check all that apply, It charges banks more interest, It pays banks less interest, It sells more securities, It decreases the money supply, In increases the money supply.