Historical evidence has shown that, when the Fed significantly increases money supply, U.S. inflation tends to ____ shortly thereafter which in turn places ____ pressure on U.S. interest rates.

Question

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When the Fed significantly increases money supply, it leads to an increase in demand for goods and services, which results in rising prices or inflation. As inflation increases, it puts upward pressure on interest rates because lenders will demand higher interest rates to offset the loss of purchasing power that results from inflation.

Historical Evidence Has Shown That, When the Fed Significantly Increases