Question

If the economy was experiencing an inflation gap, the Fed could

A.sell government securities, thereby reducing bank reserves and lowering interest rates, which would decrease investment expenditures as well as aggregate demand.

B.sell government securities, thereby reducing bank reserves and raising interest rates, which would decrease investment expenditures as well as aggregate demand.

C.sell government securities, thereby reducing bank reserves and raising interest rates, which would decrease investment expenditures as well as aggregate supply.

D.buy government securities, thereby reducing bank reserves and lowering interest rates, which would decrease investment expenditures as well as aggregate demand.

E.buy government securities, thereby reducing bank reserves and raising interest rates, which would decrease investment expenditures as well as aggregate supply.