ʺAs the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ

question 11

Multiple Choice

ʺAs the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ
ʺFor weeks, the Fed has broadcast its intention to raise interest rates glacially.ʺ The Fed was moving slowly, according to an economist because ʺ... the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check.ʺ The Fed, recognizing that the economy was improving stated it planned to ʺrespond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.ʺ Other economists disagree with the Fedʹs restrained policy as a ʺmistake.ʺ
Www.nytimes, 7/1/2004
By increasing the federal funds target, the Fed will___________ reserves and __________the quantity of money.

• A) increase; increase
• B) increase; decrease
• C) decrease; increase
• D) decrease; decrease

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Definitions:

Long-Run Equilibrium

The condition in which all inputs and outputs in an economy or a market are fully adjusted and there are no external pressures for change.

Silk-Screened T-Shirts

T-shirts printed through a process in which ink is pressed through a screen, allowing for the creation of images and texts on fabric.

Selling Price

Selling Price is the amount of money that a seller charges for a product or service.

Economic Profits

The discrepancy between what a business earns in total revenue versus the sum of its explicit and implicit expenditures.