Question

During a depression or recession, which of the following is most likely to
happen to interest rates?
A. Interest rates will likely rise as the Federal Reserve board
decreases inflation rates.
B. Interest rates will likely decrease as the Federal Reserve Board
increases inflation rates.
C. The Federal Reserve Board will likely lower interest rates.
D. The Federal Reserve Board will likely raise interest rates.

Answer 1

The Federal Reserve will more than likely decrease interest rates to encourage spending. When interest rates are low, individuals wish to spend money as it costs less for them to borrow. This increases economic activity to get themselves out of a depression/recession.