The Fed Uses the Term Target When It Announces How

question 202

Multiple Choice

The Fed uses the term target when it announces how it intends to change the federal funds rate because

• A)the change in the interest rate is a new law that all banks must adhere to.
• B)the Fed has no influence over the federal funds rate.
• C)the Fed can control the real interest rate but has no control over the nominal interest rate.
• D)the Fed expects the U.S.Treasury to conform with its monetary policy.
• E)the Fed has no direct control over interest rates and can only influence rates toward a target value.

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Definitions:

Bounded Rationality

A concept that decision-makers are limited in their decision-making capabilities by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions.

Cognitive Limitations

Cognitive limitations are the boundaries of human brain’s capacity to learn, remember, and make rational decisions.

Ambiguous Problems

Challenges or issues lacking clarity and that are open to multiple interpretations or solutions.

Ethical Soundness

The degree to which actions or policies are morally upright and adhere to accepted ethical standards.