Suppose that the Federal Reserve has recently cut interest rates in the economy and there is a credible forecast that the Fed will again cut interest rates in the future. A manager who is IS-MP savvy will expect that:
A)the cost of borrowing will increase in the near future.
B)interest rates will rise in the near future.
C)GDP in the economy will fall and sales will decrease in the future.
D)GDP in the economy will rise and sales will increase in the future.

Question

Quizplus · Accepted Answer

When the Fed cuts interest rates, it is a signal that they are trying to stimulate economic growth. Lower interest rates encourage borrowing and investment, which can lead to increased consumer spending and business activity. If there is a credible forecast that the Fed will continue to cut interest rates in the future, this reinforces the expectation of economic growth. As a result, a savvy manager would expect that GDP in the economy will rise and sales will increase in the future.

Suppose That the Federal Reserve Has Recently Cut Interest Rates