The Federal Reserve would raise the discount rate or purchase government securities to stabilize prices during rapid inflation in a period of economic growth.
To stabilize prices when the country is experiencing rapid inflation during economic growth, the Federal Reserve would raise the discount rate. Increasing the discount rate makes borrowing more expensive, leading to reduced spending and subsequently helping to control rising prices.
Additionally, purchasing government securities is another tool the Federal Reserve can use to stabilize prices. By buying these securities, the Fed reduces the money supply, which can help curb inflationary pressures.
Both actions - increasing the discount rate and purchasing government securities - are aimed at tightening monetary policy to mitigate inflationary trends.
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