Question

Which of the following might the Federal Reserve do during a period of rising inflation?(1 point)
Responses

decrease interest rates
decrease interest rates

lower taxes
lower taxes

increase interest rates
increase interest rates

increase government spending

Answer 1

Increase interest rates.

Explanation: To fight rising inflation the Fed typically tightens monetary policy by raising interest rates, which reduces borrowing and spending. Lowering taxes or increasing government spending are fiscal policy actions done by the legislature/executive, not the Fed. Decreasing rates would boost inflation, not reduce it.