If the Federal Reserve Board tightens the money supply, what is its objective?

When the Federal Reserve Board tightens the money supply, its primary objective is to reduce inflation. Tightening the money supply involves measures such as increasing interest rates or selling government securities, which make borrowing more expensive and discourage spending and investment. This is done to slow down the economy when inflation rates are high or rising, helping to maintain price stability.

By reducing the amount of money available in the economy, the Federal Reserve aims to curb excessive spending, which can lead to inflation. As a result, prices stabilize or decrease, aligning them more favorably with economic growth and purchasing power. This strategy is particularly critical in periods of rapidly rising prices, as uncontrolled inflation can erode consumer confidence and reduce overall economic well-being.

In contrast, focusing on stimulating economic growth, promoting higher employment rates, or increasing consumer spending would typically involve easing the money supply rather than tightening it. When the economy is growing too quickly or if inflation is a concern, tightening becomes necessary to prevent the adverse effects of runaway inflation while ensuring sustainable economic growth.