With a large and growing deficit, the Fed may face pressure from the government to
A) decrease the inflation tax.
B) keep interest rates low, but the Fed risks inflation by doing so.
C) decrease the quantity of money to keep the value of money high.
D) increase the velocity of circulation.
E) increase the quantity of money to prevent inflation.

Question

Quizplus · Accepted Answer

Keeping interest rates low can stimulate borrowing and spending, which may help reduce the deficit in the short term, but it can also lead to higher inflation if the economy overheats.

With a Large and Growing Deficit, the Fed May Face