Which of the Following Actions Should the Central Bank Take

question 53

Multiple Choice

Which of the following actions should the central bank take if monetary authorities want to reduce the supply of money to slow the rate of inflation?

• A) Sell government bonds, reducing money supply, increasing interest rates and slowing aggregate demand.
• B) Buy government bonds, reducing money supply, increasing interest rates and slowing aggregate demand.
• C) Decrease the discount rate, lowering interest rates, causing both costs and prices to fall.
• D) Increase taxes, reducing costs, causing prices to fall.

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Definitions:

Ideal Type

A conceptual model that captures the essential qualities of a phenomenon, used as a tool for analysis and comparison in the social sciences.

Capitalism

Capitalism is an economic system where trade, industry, and the means of production are largely or entirely owned by private individuals or corporations, aiming for profit in competitive markets.

Classical Theorist

A scholar from the foundational period of a discipline whose theories remain influential to contemporary understanding and practice.

Jean-Jacques Rousseau

An 18th-century Genevan philosopher, writer, and composer known for his influential ideas on education, society, and politics, which emphasize natural human goodness and the corrupting nature of civilization.