How Does the Fed Decide Which Monetary Measure Should Be

question 187

Multiple Choice

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

• A) The Fed would like to track a monetary measure that is most closely related to the market interest rate.
• B) The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents.
• C) The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level.
• D) The Fed would like to track a monetary measure that is most closely related to government spending.

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Alternative Use

Alternative use pertains to the different ways in which an asset or resource can be utilized apart from its current or primary purpose.

Cash

Money in the form of coins or banknotes, especially that held to conduct day-to-day transactions.

Opportunity Cost

The benefit that is missed or given up when an investor, individual, or business chooses one alternative over another.