The Federal Reserve uses monetary tools to regulate the money supply and maintain growth and stability in the U.S. economy. One way the Federal Reserve regulates the money supply is by adjusting interest rates. Adjusting interest rates can have a variety of impacts on the economy. Below is a list of different effects that might be seen when the interest rate is changed. For each effect, decide if this was caused by increasing or decreasing interest rates.(6 points)

Question

Economic effects Caused by Increasing Interest Rates Caused by Decreasing Interest Rates
a Inflation has increased

b People are now paying more for car loans

c Business investment is on the rise

d GDP growth has slowed down

e Consumers are spending more on goods

f People have started to buy more houses

Answer 1

a Increasing interest rates
b Increasing interest rates
c Decreasing interest rates
d Increasing interest rates
e Decreasing interest rates
f Decreasing interest rates