If the problem in the economy is continuous higher-than-expected increases in the consumer price index, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today.
A)lower; reduce
B)lower; induce
C)raise; reduce
D)raise; induce

Question

Quizplus · Accepted Answer

If the problem is higher-than-expected increases in the consumer price index, it indicates inflation. To combat inflation, the FOMC would raise interest rates to reduce spending today. When interest rates rise, borrowing becomes more expensive, and people tend to spend less, resulting in reduced demand for goods and services, which slows down inflation. Therefore, the best choice is C, raise interest rates to reduce spending today.

If the Problem in the Economy Is Continuous Higher-Than-Expected Increases