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If the United States economy is dealing with high inflation and the Federal Reserve implements a...

  • If the United States economy is dealing with high inflation and the Federal Reserve implements a “quantitative tightening” monetary policy. Would the Fed – increase or decrease interest rates?
  • Which two interest rates does the Federal Reserve control? (Hint – “DR” and “FFR”)
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Answer #1

  

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In a situation of infaltion the FED Reserve would increase the interest rates as increasing the interest rates would result in more savings by people and less spending. When people spend less they demand will fall down and create equilibrium with the supply and in this way inflation can be controlled.

TWO rates in control of Fed : -

Fed Funds Rate

Dearness Relief Rates

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