ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase government spending
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Expand eligibility for Medicare
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Lower interest rates
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Prohibit excessive regulation of small business
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Detailed explanation-1: -The correct answer is b: Increasing the reserve ratio and selling government securities.
Detailed explanation-2: -The Fed uses interest rates as a lever to grow the economy or put the brakes on it. If the economy is slowing, the Fed lowers interest rates to make it cheaper for businesses to borrow money, invest, and create jobs. Lower interest rates also allow consumers to borrow and spend more, which also helps spur the economy.
Detailed explanation-3: -Fed rate cuts are designed to lower interest rates throughout the economy and make it cheaper to borrow money. As a result, newly issued debt securities offer lower interest rates to holders while existing debt that carries higher interest rates may trade at a premium-that is, prices in the secondary market may rise.
Detailed explanation-4: -The Federal Reserve seeks to control inflation by influencing interest rates. When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down.