North Carolina Broker Reciprocal Practice Exam

During a period of "tight money," the Federal Reserve Board aims to decrease the money supply and make borrowing more expensive to combat inflation. One appropriate action for the Federal Reserve in such a scenario would be to increase the discount rate, which would raise the cost of borrowing for banks and, ultimately, consumers and businesses.

While buying government bonds is generally a tool used to increase the money supply, and selling government bonds would be a method to decrease it, in the context of tight money, the intention is to tighten monetary policy. Therefore, an action like raising reserve requirements or increasing the discount rate is more aligned with this objective.

In summary, if the Federal Reserve wishes to tightly control the money supply and mitigate inflationary pressures, increasing the discount rate is an effective tool.