Question

The Federal Reserve _____ interest rates to encourage economic growth.

a. raises
b. lowers

Answer 1

The Federal Reserve LOWERS interest rates to encourage economic growth.

Aside from lowering interest rates, the Federal Reserve also lowers reserve requirements and buying securities to fight recession and encourage economic growth.

Answer 2

The correct answer is: "lowers".

Lowering the interest rates of the economy is a tool for an expansionary monetary policy. When interest rates are lower, more money is pumped into the economy, because investors take the opportunity to obtain loans at a cheaper price.

When large amounts of money are conducted to investments, there is an increase in overall production figures and therefore there will be economic growht. Morever, employment is enhanced as it becomes necessary in order to meet the larger production levels and as a consequence, demand increases too.