Question

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Answer 1

Answer:

C)The government restricts the amount of money that banks can lend.

Explanation:

The government use interest rates as a tool for regulating the amount of money that banks can lend. In the US, the government, through the Fed, can adjust the Fed rate to restrict lending. If the government observers that there is too much in circulation, It increases the Fed rate. Increasing this rate means the banks will also have to increase the interest rates.

When the interest rates are high, the cost of borrowing goes up, which restricts borrowing. Reduced lending limits the amount of money in circulation.