Georgia Assessments for the Certification of Educators GACE Practice Test

If the U.S. Federal Reserve concludes that there is a significant risk of inflation, it will most likely:

1. Decrease bynd yields

2. Keep interest rates the same

3. Lower interest rates

4. Raise interest rates

The correct answer is: Decrease bynd yields

If the U.S. Federal Reserve concludes that there is a significant risk of inflation, it will most likely decrease bond yields. This is because lowering bond yields can help reduce inflationary pressures by making borrowing more expensive, thereby slowing down economic activity and reducing demand for goods and services. By decreasing bond yields, the Federal Reserve aims to cool down the economy and decrease the risk of inflation spiraling out of control. Options B, C, and D are not the most likely actions the Federal Reserve would take in response to a significant risk of inflation. Keeping interest rates the same or lowering interest rates could potentially stimulate the economy further, exacerbating inflationary pressures. On the other hand, raising interest rates could be too harsh of a measure unless inflation is very severe. Therefore, decreasing bond yields aligns best with the goal of curbing inflation while avoiding extreme measures.