In Comparing the Actions of the Fed in the Fall

question 71

Multiple Choice

In comparing the actions of the Fed in the fall of 1998 with its actions in the fall of 1991, we can say that

• A)in both instances the Fed moved quickly to raise interest rates in the face of an expected increase in inflation.
• B)in both instances the Fed moved quickly to cut interest rates in the face of signs of a credit crunch.
• C)the Fed moved more quickly in 1998 than in 1991 to cut interest rates in the face of signs of a credit crunch.
• D)the Fed failed in both cases to take action in the face of signs of a credit crunch.

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Definitions:

Depreciate

A decrease in the value of an asset over time, often due to wear and tear or obsolescence.

Nominal Exchange Rate

The rate at which one country's currency can be exchanged for another country's currency without adjustment for inflation rates.

Real Exchange Rate

The rate at which two currencies can be exchanged, adjusted for inflation, indicating how much of a country's goods and services can be exchanged for those of another country.

Prices Rise

An increase in the cost of goods and services in an economy over a period of time.