Select all that apply. Select the items that describe what most likely happens when the Federal Reserve increases the money supply (and people are confident in the economy). Interest rates rise. Businesses borrow more money. Consumption increases. Interest rates fall.

Question

Guest

Business

29 January, 13:26

Select all that apply. Select the items that describe what most likely happens when the Federal Reserve increases the money supply (and people are confident in the economy). Interest rates rise. Businesses borrow more money. Consumption increases. Interest rates fall.

+4

Answers (1)

Know the Answer?

Kristen Tapia · Answer 1

Businesses borrow more money.

Consumption increases.

Explanation:

The Federal Reserve is the body responsible for conducting monetary policy in the US. Monetary policy basically consists of two actions. The increase / decrease in the money supply in the economy and the increase / decrease in the interest rate. These actions may happen together, but they are technically independent.

When the Federal Reserve increases the supply of money in circulation, more money is circulated through loans and personal spending. This is considered a policy of stimulating the economy and can be done independently of interest rate changes, although the reduction of interest is also a stimulus monetary policy that can be done in conjunction with the increase in the money supply.