Question

Suppose the Federal Reserve raises interest rates. Which of the following predicts the most likely results? The money supply will decrease, meaning that banks will give fewer loans and prices for goods and services will fall. The money supply will decrease, meaning that more people will buy goods and services and prices will rise. The money supply will increase, meaning that banks will give more loans and more businesses can open and hire workers. The money supply will increase, meaning that prices will rise and businesses will not hire many workers.

Answer 1

The answer is money will decrease, meaning that banks will give fewer loans and prices for goods and services will fall.

This is because higher interest rates means that it is more expensive to borrow money and therefore fewer people and businesses will request loans. This tends to put downward pressure on demand for goods and services which in turn tends to put a downward pressure on prices. 

I hope this helps!!!!!!!!!

Answer 2

If there was a situation where the Fed increased interest rates then, The money supply will decrease, meaning that more people will buy goods and services and prices will fall.

What will happen if the Fed raised rates?

The federal reserve raising rates will mean that the cost of borrowing loans will be high so less people will take out loans. This will lead to a decrease in the money supply in the economy.

With money being more scarce, people won't be able to buy as much goods and services so prices will fall.

In conclusion, option A is correct.

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