Suppose that you are a member of the Board of Governors of the Federal Reserve System. The post 2008 economy is experiencing a sharp rise in the inflation rate. a. In this case, the federal funds rate should be set equal to the discount rate. decreased. set at zero. increased. b. You recommend a contraction of the money supply by increasing the reserve ratio, decreasing the discount rate, or selling bonds. decreasing the reserve ratio or discount rate, or buying bonds. increasing the reserve ratio or discount rate, or selling bonds. decreasing the reserve ratio, increasing the discount rate, or buying bonds. c. You recommend a contraction of the money supply, which would increase the lending ability of the banking system, decrease the real interest rate, and increase investment spending, aggregate demand, and inflation. reduce the lending ability of the banking system, increase the real interest rate, and reduce investment spending, aggregate demand, and inflation. reduce the lending ability of the banking system, decrease the real interest rate, and increase investment spending, aggregate demand, and inflation. increase the lending ability of the banking system, decrease the real interest rate, and reduce investment spending, aggregate demand, and inflation.

I will also recommend a contraction of the money supply which would reduce the lending ability of the banking system, increase the real interest rate and reduce investment spending, aggregate demand and inflation.

Further Explanation

Supposing I am a member of the board of governors and the economy is experiencing a sharp rise in the inflation rate, I will suggest to other members and recommend a contraction of the money supply by increasing the discount rate.

The discount rate refers to an interest rate that is charged when commercial banks borrow money from the Federal Reserve System.

Also, it is required of all banks in the United States to set aside a particular percentage of their deposits in reserve.

The Federal Reserve System was created in 1913 and it is the central bank of the United States. The structure of the Federal Reserve System is made of the Board of governors and 12 Federal Reserve banks

Some of the core functions of the Federal Reserve board include

They regulate the money supply with monetary policy
They control the affairs of the financial institutions
They control the checking clearing procedures in both regional and national.

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