An important reason why the Federal Reserve would not want to keep interest rates at 0% forever is that:
a) it restricts the money supply, making it harder for banks to lend money.
b) it limits the ability of the Fed to use expansionary monetary policy when the next recession occurs.
c) it makes borrowing for homes and major purchases more expensive.
d) it raises the possibility of higher unemployment because lower interest rates slow economic growth.

Respuesta :

An important reason why the Federal Reserve would not want to keep interest rates at 0% forever is that: it raises the possibility of higher unemployment because lower interest rates slow economic growth. The correct answer is D.

When interest rates lower, unemployment increases as companies lay off expensive workers and hire contractors and temporary or part-time workers at lower prices. When wages decrease, people can't pay for things and prices on goods and services are forced down, leading to more unemployment and lower wages.

One of the biggest pros to higher interest rates are the higher savings returns which can be earned in a savings account. And when interest rates are increasing, business and consumers cut back on spending as rises in prices on goods resulting in lower consumption.

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