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How might the Federal Reserve respond to an overheated economy or boom?

  • Question 4b of 10 - economic policy

  • Maximum Attempts: 1
  • Question Type: Multiple Choice
  • Maximum Score: 1
  • Question: How might the Federal Reserve respond to an overheated economy or boom?
  • Answers:
  1. By decreasing the discount rate
  2. By selling bonds in the open market
  3. By buying bonds in the open market
  4. By decreasing the reserve requirement

The correct answer is: By selling bonds in the open market. This will remove money from circulation, which will slow the economy. Buying bonds, decreasing the discount rate, or decreasing the reserve requirement will all add money to the economy, lower interest rates, and lead to further growth.

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