If an economy's inflation rate is above target, the central bank would be most likely to
A)encourage banks to provide loans by lowering the repo rate.
B)encourage banks to provide loans by raising the repo rate.
C)restrict bank lending by lowering the repo rate.
D)restrict bank lending by raising the repo rate.

Question

Quizplus · Accepted Answer

If an economy's inflation rate is above target, the central bank would want to restrict bank lending to decrease aggregate demand and decrease inflation. The central bank can do this by raising the repo rate, which would increase the cost of borrowing for banks and make it harder for them to lend money.

If an Economy's Inflation Rate Is Above Target, the Central