Feds System Tools and Monetary Policy Quick Check

Question

4 of 54 of 5 Items
Question
The Federal Reserve engages in another round of quantitative easing. What are the effects of this policy on the economy?(1 point)
Responses

The rate of inflation decreases as the money supply increases, which causes an increase in consumer spending, employment, and economic growth.
The rate of inflation decreases as the money supply increases, which causes an increase in consumer spending, employment, and economic growth.

Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.
Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.

Banks do not have as much funds to issue loans to consumers and businesses, which decreases consumer and business spending, and slows economic growth.
Banks do not have as much funds to issue loans to consumers and businesses, which decreases consumer and business spending, and slows economic growth.

The rate of inflation decreases as the money supply decreases, which slows economic growth and increases unemployment.

Answer 1

The most accurate response regarding the effects of a round of quantitative easing by the Federal Reserve is:

Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.

Quantitative easing increases the money supply, which can lower interest rates, making borrowing cheaper. As a result, banks have more capital to lend, fostering increased spending and investment from consumers and businesses, ultimately stimulating economic growth and potentially increasing employment.