The Fed will raise the interest rate by the greatest amount when the economy is on the ________ part of the AS curve and there is ________.
A) flat; a decrease in taxes
B) flat; an increase in taxes
C) steep; a decrease in taxes
D) steep; an increase in taxes

Question

Quizplus · Accepted Answer

The Fed is more likely to raise interest rates by a significant amount when the economy is on the steep part of the Aggregate Supply (AS) curve, as this indicates that the economy is near full capacity and inflationary pressures are high. A decrease in taxes can stimulate economic activity further, increasing the risk of inflation, which the Fed would counteract by raising interest rates.

The Fed Will Raise the Interest Rate by the Greatest