While the Federal Reserve's decision to cut the federal funds rate is expected to ________ economic growth, its decision to raise the federal funds rate is expected to ________ economic growth.

Question

Quizplus · Accepted Answer

When the federal funds rate is cut, borrowing becomes cheaper and consumers tend to spend more money, which leads to an increase in economic growth. On the other hand, when the federal funds rate is raised, borrowing becomes more expensive and consumers tend to cut back on spending, leading to a slowdown in economic growth. Therefore, the best choice is A, where cutting the federal funds rate speeds up economic growth and raising it slows down economic growth.

While the Federal Reserve's Decision to Cut the Federal Funds