The Federal Reserve will tend to tighten monetary policy with the goal is to stabilize the economy when a. it thinks the unemployment rate is too high. b. it thinks inflation is too high today, or will become too high in the future. c. the growth rate of real GDP is quite sluggish. d. interest rates are rising too rapidly.

Tightening monetary policy means to reduce the amount of money in the country. This is done by the Fed if they think that inflation is too high or will be too high and so want to keep it in check.

Reducing the amount of money in the nation reduces inflation in theory because it reduces the amount of money that people have available to buy goods and services and as people react by buying less goods and services, prices will fall to match this reduced demand.

Martebi Martebi · Answer 2 · 2021-12-09T10:52:05+01:00

Government is known to have some amount of hold on monetary policy. Federal Reserve will tend to tighten monetary policy when it thinks inflation is too high today, or will become too high in the future.

Monetary policy is simply known to be the control of the quantity of money that is present in an economy and the links through which new money is supplied.

The central bank tightens policy through the increase of short-term interest rates through policy that alters the discount rate and federal funds rate.

Conclusively, if inflation is increases in a faster rate, or when the economy is growing faster than expected, the FED will then increases the interest rates.

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