The Federal Reserve has a number of ways to influence the supply of money. The Federal Reserve can influence the interest rate that people pay on their loans, regardless of what bank they are using. How might the Fed adjust the interest rate if it wanted to increase the amount of money in circulation?

Question

The Federal Reserve has a number of ways to influence the supply of money. The Federal Reserve can influence the interest rate that people pay on their loans, regardless of what bank they are using. How might the Fed adjust the interest rate if it wanted to increase the amount of money in circulation?

A. Decrease the interest rate. People would be less likely to take out loans.
B. Increase the interest rate. People would be more likely to take out loans.
C. Increase the interest rate. People would be less likely to take out loans.
D. Decrease the interest rate. People would be more likely to take out loans.
My answer is: D

Answer 1

Right again! D. You're on a roll! :-)

Answer 2

Thank you so much Ms. Sue.

Answer 3

Your answer is correct. If the Federal Reserve wanted to increase the amount of money in circulation, it would typically decrease the interest rate. When the interest rate is lower, it becomes more affordable for people to borrow money, which incentivizes them to take out loans. As more loans are taken out, more money is injected into the economy, thereby increasing the overall money supply.