ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Detailed explanation-2: -“If inflation remains stubbornly higher, the Federal Reserve will continue to aggressively raise rates, ” she said in advance of the Fed’s meeting. “Under this scenario, mortgage rates could climb to 8% or beyond in late 2022 and into the first part of 2023.”

Detailed explanation-3: -Policies that reduce an inflationary gap include reductions in government spending, tax increases, bond and securities issues, interest rate increases, and transfer payment reductions. A government may use fiscal policy to help reduce an inflationary gap by decreasing the number of funds circulating within the economy.

Detailed explanation-4: -When the Fed is buying securities and increasing the money supply, the Fed is attempting to stimulate economic growth. This typically has a ripple effect of increased inflationary pressure, higher economic growth, higher employment, and generally greater economic prosperity for citizens and companies.