If the Inflation Rate Is Equal to the Target Inflation

question 61

Multiple Choice

If the inflation rate is equal to the target inflation rate, then the Fed

• A)does not have to change monetary policy as long as the rate of inflation remains constant.
• B)will only change monetary policy if it wants to change the target inflation rate.
• C)will change monetary policy if it feels that aggregate demand is too high or low.
• D)does not have to worry about changing monetary policy.
• E)will change monetary policy only if it believes that potential GDP is changing.

---

Definitions:

Nondiscretionary Fiscal Policy

Government policies related to taxation and spending that automatically adjust without the need for explicit action by policy makers.

Legislative Changes

Modifications or alterations to existing laws enacted by a legislative body that can affect various sectors of the economy or society.

Budget Deficit

The financial situation in which a government's expenditures exceed its revenues within a specific period, leading to borrowing or debt accumulation.

MPC

The marginal propensity to consume, which measures the change in consumption resulting from a change in income.