Suppose the Fed Sets an Inflation Target of 2% a Year

question 42

Multiple Choice

Suppose the Fed sets an inflation target of 2% a year. If economic growth averages 3% per year and velocity grows by 1% per year, by how much should it increase the money supply each year?

• A)2%
• B)4%
• C)5%
• D)6%

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Definitions:

Reward

A stimulus that increases the likelihood of a behavior being repeated.

Crespi

Refers to psychologist Leonard Crespi, known for his work in experimental psychology, especially in motivational research involving rewards.

Hunger Rats

Rats that are used in research studies to investigate the physiological, psychological, and behavioral processes related to hunger and satiety.