If the economy is facing inflationary pressures, the Federal Reserve will

Question

Quizplus · Accepted Answer

If the economy is facing inflationary pressures, the Federal Reserve will increase interest rates to restrict borrowing and slow down spending, which reduces demand and ultimately lowers inflationary pressures. Raising taxes and decreasing government spending may also reduce demand and inflationary pressures, but these actions would be taken by the government rather than the Federal Reserve. Lowering interest rates would have the opposite effect, increasing borrowing and spending and exacerbating inflationary pressures.

If the Economy Is Facing Inflationary Pressures, the Federal Reserve