SIE Exam Question 436: Answer and Explanation

Question: 436

If inflation has been increasing at an increasing rate, which of the following actions might the Federal Reserve Board take?

• A. Decreasing interest rates
• B. Increasing interest rates
• C. Increasing the money supply
• D. Lowering bank reserve requirements

Correct Answer: B

Explanation:

B: To curb inflation, the FED could increase interest rates. This can reduce the rate of spending since there is less money to go around and therefore can reduce spending and slow inflation. The other 3 answers may create more inflation.