The economy is in a recession.The Fed could take direct action to stimulate economic activity by ________.
A) lowering short-term interest rates
B) lowering long-term interest rates
C) increasing short-term interest rates
D) increasing long-term interest rates

Question

Quizplus · Accepted Answer

Lowering short-term interest rates would lower the cost of borrowing for banks, individuals, and businesses. This would encourage borrowing and spending, thereby increasing economic activity and helping to stimulate the economy out of the recession. Lowering long-term interest rates primarily affects borrowing for large, long-term projects such as mortgages or infrastructure projects, but may have less of an immediate impact on the overall economy. Increasing interest rates would likely have the opposite effect, discouraging borrowing and spending and potentially causing the economy to slow down further.

The Economy Is in a Recession