Recall the Application About the Reasons Why Interest Rates Rise

question 104

Multiple Choice

Recall the Application about the reasons why interest rates rise during an economic recovery to answer
the following question(s) . Although higher interest rates are often associated with lower output, interest
rates often start to rise when an economy recovers from a recession and when an economy grows quickly.
As an example, in 2005, a year in which real GDP grew very rapidly,interest rates on 3 -month Treasury
bills rose from 2.3 percent at the beginning of the year to 3.9 percent by the end of the year.
-According to this Application, one reason why interest rates rise during an economic recovery is

• A)the Fed increases the money supply to stimulate the economy.
• B)the Fed decreases the money supply to avoid overheating the economy.
• C)the Fed decreases the money demand to offset the increase in money supply.
• D)the Fed increases the money demand to balance the increase in money supply.

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