Question

During 2017 the inflation rate increased slightly but remained in the​ "comfort zone" and the unemployment rate was low. Why might the Fed decide to try to lower interest rates​ (or stimulate in other​ ways) in this​ situation? In this​ situation, the Fed might lower the interest rate if​ _______.
A. it thought that the rising inflation rate was a greater problem than unemployment
B. it thought that unemployment was a greater problem than the rising inflation rate
C. the quantity of loanable funds demanded exceeded the quantity of loanable funds supplied
D. the quantity of money was growing too quickly

Answer 1

Answer:B It thought that unemployment was a greater problem than the rising inflation rate

Explanation:

Inflation is the continuous rise in price of goods and services which is as a result of large volume of money in circulation used for the few available goods and services.

Unemployment is a situation where all that are willing and capable of being employed are unable to get employment.

In the above scenario lowering Interest rates will increase the volume of money in circulation which will invariably increase inflation and we equally increase level of investment as the cost of fund will be cheaper thereby lowering unemployment.

This action means unemployment is of greater problem than rising inflation.

It does not mean inflation is of more concern than unemployment otherwise it will have increase the interest rate, it will make loanable fund demanded to exceed supply and the quantity of money in supply will increase.