If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.
A)reduce; raise
B)increase; lower
C)increase; raise
D)reduce; lower

Question

Quizplus · Accepted Answer

Raising the interest rate increases the cost of borrowing and reduces demand, leading to lower consumption and investment spending. This reduction in spending leads to a decrease in aggregate demand, causing a decrease in both inflation and real GDP in the short run. Therefore, reducing the interest rate will stimulate economic growth by increasing consumption and investment spending.

If the Fed Raises the Interest Rate,this Will ________ Inflation