Question

1. What action should the Federal Open Market Committee (FOMC) take if it

sees signs of inflation rising above 2% and believes inflation will continue to
rise if it takes no action?
2. Explain how the action you suggest will work to control inflation.

Answer 1

Answer: Governments can use wage and price controls to fight inflation, but that can cause recession and job losses

Explanation: Governments can also employ a contractionary monetary policy to fight inflation by reducing the money supply within an economy via decreased bond prices and increased interest rates.