Question

Which of these statements is false?

		If the federal funds rate is too low, it will cause inflation.
		If inflation occurs, and begins to increase, the only way to reduce it is to increase the federal funds rate.
		Increases in the federal funds rate sufficient to reduce inflation might cause a recession.
		If the federal funds rate is decreased enough to cause inflation it will also cause a recession.

Answer 1

Option 4

If the federal funds rate is decreased enough to cause inflation, it will also cause a recession

A federal fund rate is a rate bank charges each other for overnight borrowings. The decrease in the federal fund rate increases the money supply and decreases the interest rate in the economy. It increases consumption and investment spending. It increases aggregate demand which increases price level and real GDP.

It means a too low federal fund rate increases inflation but can not creates a recession.