Question

If the federal reserve decreases the rate on required and excess reserves, then it means that

Answer 1

The correct answer is C) real GDP rises and the unemployment rate decreases.

The complete question is the following:

If the Federal Reserve decreases the rate on required and excess reserves, then it means that:

A) real GDP decreases and deflation occurs.

B) real GDP rises and the unemployment rate increases.

C) real GDP rises and the unemployment rate decreases.

D) real GDP decreases and the unemployment rate decreases.

So if the Federal Reserve decreases the rate on required and excess reserves, then it means that real GDP rises and the unemployment rate decreases.

The Federal Reserve -commonly known as the Fed- plays the role of the Central bank in the United States. The Fed regulates the money supply to maintain a healthy financial system. It has to make difficult decisions in difficult times in order to avoid a crisis and regulates the economy of the United States. The Fed procures to balance inflation with economic growth.