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- Fiscal Tools to fight inflation are decrease spending and raise taxes. These are the tools to use because with inflation you want to lower AD.
- Fiscal Policy Tools
- One of the federal tools is the Open Market Operations. This is the purchase of sales and security in the open market by a central bank. This is one of the key tools used by the Federal Reserve to implement monetary policy.
- Another federal tool is The Discount Rate, this is the interest rate at which commercial banks and other depository institutions can borrow reserves form regional Federal Reserve Bank. They use this for temporary changes.
- 3 Federal Tools
- Finally, there are Reserve requirements which are the amount of finds that a bank holds in reserve to ensure that they are able to meet liabilities in case of sudden withdrawals. The federal reserve uses this to increase or decrease the money supply in the economy.
- The Fed can use the Open Market Operations in order to solve inflation. This is because the Fed would decrease SM and decrease SLF and decrease AD.
- What Fed could do with OMO to solve inflation
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