If the Fed believes there has been a positive wealth effect, it will want to
A)raise interest rates to reduce inflationary pressure.
B)raise interest rates to reduce prices.
C)lower interest rates to increase potential GDP.
D)lower interest rates to offset the increase in wealth.
E)raise interest rates to encourage saving and investment.

Question

Quizplus · Accepted Answer

When there is a positive wealth effect, consumers feel wealthier and are likely to spend more, which can lead to inflationary pressure. The Federal Reserve may raise interest rates to cool down the economy and reduce this inflationary pressure.

If the Fed Believes There Has Been a Positive Wealth