ECONOMICS
MONETARY POLICY
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Buying securities
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Stimulating economic growth
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Lowering interest rates
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Raising interest rates
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Detailed explanation-1: -Even so, interest rate hikes are known as the central bank’s one major tool to lower inflation, which it does by raising the cost of borrowing money to curb the demand for goods and services. Economists won’t know until later if the Fed’s moves were successful or not.
Detailed explanation-2: -As the theory goes, if it’s more expensive to borrow money or carry a balance on a credit card, consumers will spend less. When spending declines, demand will fall and, eventually, so will the price of everyday goods.
Detailed explanation-3: -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.
Detailed explanation-4: -This key interest rate impacts how much commercial banks charge each other for short-term loans. A higher fed funds rate means more expensive borrowing costs, which can reduce demand among banks and other financial institutions to borrow money.
Detailed explanation-5: -The Fed has several tools it traditionally uses to tame inflation. It usually uses open market operations (OMO), the federal funds rate, and the discount rate in tandem. It rarely changes the reserve requirement.