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Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp rise in the inflation rate. What change in the Federal funds rate would you recommend?

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4 votes

Answer:

Increase in the Federal fund rate

Step-by-step explanation:

The Federal fund rate may be defined as the interest rate that the bank charges on another bank for an overnight loans. In other words it is the interest charged on the excess reserve that other borrows or lends overnight.

The Federal bank takes help of the Federal fund rates to keep a control on the inflation which encourages healthy economic growth.

In the context, when the economy of a country is experiencing sharp increase in inflation rate, I would recommend to increase the Federal fund rate so as to control the inflation rate being increased.

Both inflation rate and Federal fund rate are related closely to the relative availability of the reserves or the relative scarcity of he reserves in the Federal.

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