A. purchasing securities in the open market
B. selling securities in the open market
C. encouraging importation of goods from all countries
D. encouraging banks to lend for
Correct Answer:
Option B = selling securities in the open market
Explanation
Inflation is simply when excess money is used in buying few goods. This could be as a result of high wages with no matching productivity. When people have excess money available for spending, their purchasing power will be high, as they will be willing to pay any amount to get goods (which are in limited supply) in this case.
The government can curtail inflation by raising the level of output/production and taking out the excess money in circulation in the economy. This is done through the sale of securities at high-interest rates. When people realize that, the government is offering to sell securities and the interest paid on the securities is high, they will be willing to buy from the government. With this, they are less money available for spending as many people may have invested their excess monies with the government through the purchase of securities.
