When will U.S. interest rates rise? The Federal Reserve Chaiman Ben Bemanke said

Question

When will U.S. interest rates rise? The Federal Reserve Chaiman Ben Bemanke said Thursday that while interest rates wil stay low for some time, interest rates will ise as the recovery picks up in order to fight off the threat of inflation Source CNNMoney, October 9, 200s Explain why when the economy starts to recover from recession and interest rates are low there is a threat of inflation When the economy starts to recover from recession and interest rates are low there is a "threat of Iinfation because the 0 A demand for money decreases in a recovery 8, demand for money increases O supply of money decreases D. demand for money and the supply of money increase The Fed must continually the quantity of money to keep the nominal interest rate low As a result the inflation rate in the long run O A. increase fals ·B· increase rises C. decrease, rises D. decrease 9ats OE, keep constant mes

Explanation / Answer

Answer 1:

Option D. As the economy recovers demand for money and supply of money increases which leads to increase in inflation rate of the economy.

Answer 2:

Option B. The Fed must continually increase the level of money supplied in the economy to keep interest rates low. This increases inflation in the long run.

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