Why might the Fed decide to monetize the deficit?
A)to keep inflation low
B)to reduce the structural deficit
C)to reduce the budget deficit
D)to keep interest rates low

Question

Why might the Fed decide to monetize the deficit?
A)to keep inflation low 
B)to reduce the structural deficit 
C)to reduce the budget deficit 
D)to keep interest rates low

Quizplus · Accepted Answer

Monetizing the deficit involves the central bank buying government bonds, which increases the money supply and can lead to lower interest rates. Lower interest rates can help stimulate economic growth and reduce borrowing costs for businesses and households. Therefore, the Fed may decide to monetize the deficit to keep interest rates low. However, this can also lead to inflationary pressures if not managed properly.

Why Might the Fed Decide to Monetize the Deficit