If the Fed adopts a policy of pegging the interest rate,a ________ in government spending forces the Fed to increase the money supply to prevent interest rates from ________.
A)fall;increasing
B)fall;decreasing
C)rise;decreasing
D)rise;increasing

Question

Quizplus · Accepted Answer

When the Fed pegs the interest rate and there is a rise in government spending, it puts upward pressure on interest rates due to increased demand for funds. To maintain the pegged rate, the Fed must increase the money supply to accommodate this demand and prevent interest rates from increasing.

If the Fed Adopts a Policy of Pegging the Interest