According to this chart, what is one result of the federal reserve sharply decreasing the discount rate?
a. deflation occurs as the economy expands
b. deflation occurs as the economy contracts
c. inflation occurs as the economy expands*******
d. inflatioon occurs as the economy contract
We can't see the chart.
Even if I can't see the chart, your answer is probably correct. Conventional economic theory indicates that inflation occurs when interest rates are low and the economy expands. It's not always true, as demonstrated by the last eight years, but that's the expected result.
You are correct, it's C, Inflation occurs as the economy expands.
To determine the correct answer, we need to understand the relationship between the discount rate set by the Federal Reserve and its impact on the economy. The discount rate is the interest rate at which commercial banks can borrow money directly from the Federal Reserve.
When the Federal Reserve decreases the discount rate, it becomes cheaper for banks to borrow money. This, in turn, encourages commercial banks to borrow more, which increases the money supply in the economy.
With an increased money supply, it becomes easier for individuals and businesses to access credit, leading to more spending. This increased spending can result in an expanded economy.
Based on this information, the correct answer is c. inflation occurs as the economy expands. When there is an expansion in the economy as a result of decreased discount rates, it often leads to inflation because more money is available in the economy, thereby increasing overall demand.