Question

Gig recently heard a radio report that the Fed will try to help get the U.S. economy back on track. If the Fed takes action, Gig would likely see:

A. Lower interest rates.
B. An increase in the size of the government's budget deficit.
C. Lower government spending.
D. An increase in the minimum wage.

Answer 1

The correct answer is A. Lower interest rates.

Step-by-step explanation:

The interest rate is the price of money in the financial market. Like the price of any product, when there is more money the low rate and when there is a shortage it goes up.

When the interest rate goes up, the plaintiffs want to buy less, that is, they request less resources on loan from the financial intermediaries, while the bidders seek to place more resources (in savings accounts, CDT, etc.). The opposite happens when the rate falls: financial market claimants request more credits, and bidders withdraw their savings.