Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would
A)increase government spending.
B)increase the money supply.
C)decrease government spending.
D)decrease the money supply.

Question

Quizplus · Accepted Answer

To counter rising unemployment and falling output caused by an increase in interest rates, the Federal Reserve would increase the money supply. This action can lower interest rates, stimulate borrowing and spending, and ultimately support economic growth and employment.

Suppose an Increase in Interest Rates Causes Rising Unemployment and Falling