Final answer:
Tight money policy is implemented by the Federal Reserve during periods of high inflation, employing measures like increasing the discount rate and selling securities in open market operations to reduce the money supply and raise interest rates. Option B is correct.
Step-by-step explanation:
“Tight money” policy is typically used by the Federal Reserve during times of high inflation to control economic growth and prevent the economy from overheating. During such times, the Federal Reserve may increase the discount rate, which leads to a reduction in commercial banks’ borrowing of reserves. As a result, fewer loans are available, the money supply falls, and market interest rates rise. Another measure they may employ is selling securities in open market operations, which decreases the supply of reserves and increases the federal funds rate, thus tightening the money supply further.
The correct answer to the student's question is: b) During times of inflation; by increasing the reserve ratio and c) During times of inflation; by selling securities in open market operations, indicating that the Federal Reserve uses tight money policy during periods of high inflation by taking measures to decrease the money supply and increase interest rates.