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If the rate of inflation rate was increasing and the unemployment rate was below the natural...

If the rate of inflation rate was increasing and the unemployment rate was below the natural rate of unemployment, the FOMC would likely respond by doing which of the following?

None of the responses are correct

Decreasing the federal funds target rate and selling Treasuries

Increasing the federal funds target rate and selling Treasuries

Increasing the federal funds target rate and purchasingTreasuries

Decreasing the federal funds target rate and purchasingTreasuries

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Answer #1

When the inflation is increasing and the unemployment bus lower than targetted or below the natural rate of unemployment the Federal open market committee will raise the federal fund target rate so as pull money out and also will sell treasuries which will lower banks reserves and allow them to raise rate. Hence Option C "Increasing the Federal fund target rate and selling securities" is correct

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