Question

how does lowering the federal funds rate target help encourage economic growth? (1 point) it forces all businesses to lower their prices. it raises the value of currency for imports. it creates jobs through new government projects. it lowers borrowing costs to increase spending.

Explanation:

• Option A: The federal funds rate doesn't force all businesses to lower prices. Businesses set prices based on various factors like costs, demand, competition, not directly due to the federal funds rate.
• Option B: Lowering the federal funds rate typically weakens the currency (makes it cheaper for imports, not raise its value for imports). A lower rate can lead to less demand for the domestic currency in financial markets.
• Option C: Lowering the federal funds rate is a monetary policy tool (by the central bank), while creating jobs through new government projects is fiscal policy (government spending, taxes). These are different policy tools.
• Option D: When the federal funds rate target is lowered, it becomes cheaper for banks to borrow from each other. This leads to lower interest rates for consumers and businesses to borrow (like for loans, mortgages, business investments). Lower borrowing costs encourage people and businesses to spend more (e.g., businesses invest in new projects, consumers buy homes or cars), which increases economic activity and growth.

Answer:

D. It lowers borrowing costs to increase spending.