Question

When the Federal Reserve lowers interest rates, hoping to jump-start the employment market, what does it hope it will accomplish with that monetary policy action?

A) That the lower interest rates will reduce the money supply to lower inflation.
B) That people will begin borrowing enough money so that they do not have to work.
C) That enough people will stop borrowing money and increase spending to raise the GDP.
D) That businesses will begin increasing investments, which in turn, will cause a need for more employees.

Answer 1

D) That businesses will begin increasing investments, which in turn, will cause a need for more employees.

Step-by-step explanation:

When the Federal reserves lower interest rates, it makes the cost of borrowing affordable. Banks and other lenders can advance credit to households and businesses at attractive rates. Low-interest rate encourages banks to loan out rather than hold excess reverses.

Affordable credit is good news to investors as they can manage to borrow capital to expand their business. As businesses expand, they will require more employees to work in the expanded production. The low-interest-rate also encourages start-up business. The expansion of old enterprises and the formation of new ones create job opportunities in the economy.