Answer:
d. decreasing reserves to increase interest rates
d. decreases in investment and a slowing of output growth
Explanation:
When current output is greater than potential output it will means economy is expanding and inflation is high and to control this fed will decrease the reserves due to which money supply will get reduced and interest rate will rise.
When current output and potential output are out of balance, the Federal Reserve has monetary policy tools at its disposal to correct this imbalance. By manipulating reserves (by buying or selling bonds), the Fed alters interest rates (if money supply increases, interest rates should fall and vice versa).
When interest rates decrease, the economy is stimulated with increased investment, consumption, and employment. When interest rates increase, inflation is kept in check.
When interest rate rise bank will not be able to loan much and many firms will not take much loan as demand will be low and this will lead to decrease in investment and it will slow down output growth.
