The Fed raises the interest rate when it
A)fears recession.
B)wants to increase the quantity of money.
C)fears inflation.
D)wants to encourage bank lending.
E)cannot change the quantity of money.

Question

Quizplus · Accepted Answer

The Fed raises the interest rate when it fears inflation as higher interest rates can slow down economic activity and reduce inflationary pressures. This is done to maintain price stability and control inflation. The other options are incorrect as the Fed would lower the interest rate if it fears a recession or wants to encourage bank lending, and it cannot increase the quantity of money if the economy is already at full employment level.

The Fed Raises the Interest Rate When It