If the Fed decides to keep interest rates low when there is a large budget deficit, economists conclude that the Fed is
A)monetizing the debt.
B)neutralizing the effects of the deficit.
C)correcting the deficit for inflation.
D)resisting the effects of the deficit.

Question

Quizplus · Accepted Answer

When the Fed decides to keep interest rates low in the presence of a large budget deficit, it essentially buys government bonds in the open market, which increases the money supply and lowers interest rates. This helps the government finance its deficit spending by creating more money and reducing the cost of borrowing. This process is known as monetizing the debt.

If the Fed Decides to Keep Interest Rates Low When