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Suppose a wave of investor and consumer pessimism causes a reduction in spending. if the federal reserve chooses to engage in active stabilization policy, it should decrease the interest rates to boost the borrowings of the investors and consumers.
Active stabilization policy of the federal bank is adjustment of the monetary policy by the central bank to keep the economy stable and growing without large fluctuations.
Whenever there is a requirement to discourage borrowings it will increase the interest rates of the banks and whenever there is requirement to encourage the borrowing the federal bank will reduce the interest rates.
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