Question

The Federal Reserve will tend to tighten monetary policy when
Select one:
-interest rates are rising too rapidly.
-if it thinks the unemployment rate is too high.
-the growth rate of real GDP is quite sluggish.
-it thinks inflation is too high today, or will become too high in the future.

Answer 1

When an economy is accelerating too quickly or inflation (overall prices) is rising too quickly,  Federal Reserve tighten monetary policy

How does one go about tightening monetary policy?

• When an economy accelerates too quickly or inflation (overall prices) rises too quickly, central banks tighten monetary policy.Raising the federal funds rate, which is the rate at which banks lend to one another, raises borrowing costs and reduces lending.

• The central bank can also tighten monetary policy by limiting money supply.They can achieve this by printing less money or selling long-term government bonds to the banking sector.

• Banks restrict lending by selling bonds, resulting in a drop in liquidity.To impact the supply of money, the Federal Reserve can buy and sell securities from banks.

• The Federal Funds Rate is affected by changes in the money supply. The Federal Funds Rate is influenced by changes in the money supply.-Banks lend to one another money held by the Federal Reserve.-Increased money supply reduces the interest rates that banks charge one another.

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