Answer :
Is this an essay? If inflation is running high, the Fed will raise interest rates, sell bonds on the open market, and raise the reserve ratio (if it comes to that. It rarely ever does). Raising interest rates makes money "rare." Selling bonds decrease the reserves of banks, which decreases their lending capabilities (again, making money rarer). The reserve ration is the "nuclear option" of monetary policy. It specifically changes how much money banks have to keep on hand. If it changes, the money multiplier changes. In other words, the Fed would raise the reserve ratio in order to fight inflation.
Answer:
If inflation rises too quickly, the Fed will raise interest rates, sell bonds on the open market, and increase the reserve ratio (if necessary). It almost never does). Money becomes "scarce" when interest rates rise. Bank reserves are depleted as a result of bond sales, limiting their ability to lend (again, making money rarer). The reserve ration is monetary policy's "nuclear option." It alters the amount of cash that banks must hold on hand. The money multiplier changes if it changes. To put it another way, the Fed would raise the reserve ratio to combat inflation.
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