If businesses are producing at capacity, and the nation is experiencing almost full employment (a very low rate of unemployment-less than 2%), the Fed may decide to
A) lower interest rates.
B) raise taxes.
C) lower taxes.
D) increase interest rates.

Question

Quizplus · Accepted Answer

When the business cycle is experiencing a boom, businesses begin producing close to capacity, most people who want to be employed are employed, and spending is robust, the government may decide to curb inflation (rising prices) by raising interest rates to make borrowing less attractive. If borrowing is less attractive, the demand for goods and services will go down, and subsequently prices will remain stable.

If Businesses Are Producing at Capacity, and the Nation Is