QUESTION 2 25 point There are different policy tools that co

QUESTION 2 2.5 point There are different policy tools that countries can use to solve macroeconomic problems. Among those policies is the so-called exchange rate policy. Consider the following case. The United States is experiencing high inflation rate and would like to resort to a policy to reduce the inflation rate. Among the policies listed below, identify the appropriate action that need to be taken. Buy Treasury bonds and simultaneously reduce interest rate Find a policy to devalue the dollar. For instance, implement an expansionary monetary policy. Sell Treasury bonds O Exchange dollars for foreign currencies in the FX market.

Solution

Sell Treasury Bonds

By selling treasury bonds, the liquidty available in the market is taken by the Treasury thereby reducing the inflation