If the actual inflation rate is less than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.
A)raise; down
B)raise; up
C)lower; down
D)lower; up

Question

Quizplus · Accepted Answer

When the actual inflation rate is less than the target inflation rate, the Federal Reserve may lower the real interest rate to stimulate economic activity by encouraging more consumption and investment. Lowering the real interest rate makes borrowing cheaper, which can lead to increased spending and investment by consumers and businesses.

If the Actual Inflation Rate Is Less Than the Target