When the Fed uses an interest rate as an intermediate target, upward pressure on the interest rate is countered by increasing the supply of reserves. This may lead to
A)higher fed funds rates.
B)steady economic growth.
C)a downward slide into recession.
D)higher inflation in the future.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the supply of reserves to counter upward pressure on interest rates, it makes borrowing cheaper. This can stimulate economic activity in the short term but may lead to higher inflation in the future as the increased money supply circulates through the economy.

When the Fed Uses an Interest Rate as an Intermediate