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Occupational Health and Safety, Canadian Edition

15th Edition
by David L. Goetsch, University of West Florida and Oskaloosa-Walton Eugene Ozon, Algonquin College
1035 Solutions 49 Chapters 1385 Studied ISBN: 0133450244 Computer Science 5 (1)

Chapters 35: DQ 10

10. Suppose that the Federal Reserve thinks that a stock market bubble is occurring and wants to reduce stock prices. What should it do to interest rates?


Step-By-Step Solution

10. Suppose that the Federal Reserve thinks that a stock market bubble is occurring and wants to reduce stock prices. What should it do to interest rates?

Answer: If the Fed wants to decrease stock prices it should raise interest rates. Increasing the risk-free interest rate will make risk-free investments more attractive and riskier investments (like stocks) relatively less attractive. As investors purchase their risk-free assets and sell more stocks, stock prices will fall.


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