If an Economy's Inflation Rate Is Above Target, the Central

question 36

Multiple Choice

If an economy's inflation rate is above target, the central bank would be most likely to

• A) encourage banks to provide loans by lowering the refinancing rate.
• B) encourage banks to provide loans by raising the refinancing rate.
• C) restrict bank lending by lowering the refinancing rate.
• D) restrict bank lending by raising the refinancing rate.

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Definitions:

Factor

A finance company to which businesses sell their accounts receivable—usually for a percentage of the total face value.

Prime Rate

The interest rate that commercial banks charge their best customers (usually large corporations) for short-term loans.