Tim’s Bakery bakes muffins for 40 local supermarkets and sells them through the supermarkets on a consignment basis, which means he only gets paid for the muffins that sell. He destroys muffins that don’t sell. People in this city love his muffins He estimates a daily demand of 3,000 muffins with a standard deviation of 300 muffins. Suppose he produces 3,564 muffins. Using the Excel formula NORMDIST (level of production, mean, standard deviation, 1), calculate the expected service level or percentage time in stock.

The statements which describe how the Fed responds to high inflation:

1. It charges banks more interest.

2. It sells more securities.

3. It decreases the money supply.

A high inflation is a situation in which there is too more money supply and very few goods and services in the market. Therefore this will create the situation of high demand as per the supply.    

The Fed can charge the banks more interest. This will make the banks to increase their lending rates, but only to a certain extent. When the discount rate rises, the interest rates of these loans will also rise, leading to reduce in the demand for loans. This causes a reduction in the money circulating in the economy.

Fed can sell securities, so the banks are forced to spend some money in buying these securities.  This will results reduction in the amount of money supply in the economy.

Further explanation:

Inflation:

Inflation refers to decrease in the money supply and increase in the demand as compared to the supply. The government reduces the money supply so as to reduce the high inflation rate because, if there will be more money in the economy, supply will automatically tends to get reduced.

Thus, the statements which describe how the Fed responds to high inflation:

1. It charges banks more interest.

2. It sells more securities.

3. It decreases the money supply.

Learn more:

1. Manufacturers:

2. Charging fee in case of credit card

3. Consequences of non-payment of monthly credit card payment

Answer details:

Grade: High School

Subject: Economics

Chapter: Inflation

Keywords: Which statements describe how the Fed responds to high inflation, Check all that apply, It charges banks more interest, It pays banks less interest, It sells more securities, It decreases the money supply, In increases the money supply.