Question

In this scenario, what is the Fed trying to do by increasing interest rates? Check all that apply.

decrease the amount of money that banks have to lend
increase the money supply for banks
reduce the amount of available credit
discourage consumer borrowing by increasing interest rates on loans
encourage banks to loan more money

Answer 1

Based on the given scenario, the Fed is trying to:

Decrease the amount of money that banks have to lend: Increasing interest rates can make borrowing more expensive for banks, which in turn reduces the amount of money they have available to lend.

Reduce the amount of available credit: By increasing interest rates, the Fed aims to discourage borrowing and reduce the overall availability of credit in the economy.

Discourage consumer borrowing by increasing interest rates on loans: Higher interest rates on loans make borrowing more expensive for consumers, which can discourage them from taking on new debt.

Therefore, the correct options are:

Decrease the amount of money that banks have to lend

Reduce the amount of available credit

Discourage consumer borrowing by increasing interest rates on loans