Higher interest rates would have A. increased profits for firms. B. decreased investment spending by firms and home purchases. C. increased net exports. D. increased inventory spending. The Fed appears to believe that the more "potent multiplier effect" is associated with A. consumer spending on non-durable goods because it is more sensitive to lower interest rates. B. investment spending because it is more sensitive to lower interest rates. C. inventory spending because it is less sensitive to lower interest rates. D. consumer spending on non-durable goods because it is less sensitive to lower interest rates.

1.) B. Decreased investment spending by firms and home purchases.

2.) B. Investment spending because it is more sensitive to lower interest rates.

Explanation:

Higher interest rate tends to moderate economic growth, by increasing the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending, this tendency reduces inflationary pressures and cause an appreciation in the exchange rate.

Changes in interest rates can have both positive and negative effect s on the markets. Central banks often change their target interest rates i response to economic activity: raising rates when the economy is overly strong, and lowering rates when the economy is sluggish.

Lowering rates makes borrowing money cheaper. This encourages consumer and business spending and investment and can boost asset prices.

Lowering rates, however, can also lead to problems such as inflation and liquidity traps, which undermines the effectiveness of low rates.