When the economy is near capacity, the Fed would lower the interest rate in response to an increase in government spending.

Question

Quizplus · Accepted Answer

When the economy is near capacity, the Fed would actually increase interest rates to prevent inflation from rising further due to the government spending. Lowering interest rates would only add more stimulus to an already overheated economy, which could lead to inflationary pressures.

When the Economy Is near Capacity, the Fed Would Lower