If the Fed Wants to Shift Toward a More Expansionary

question 146

Multiple Choice

If the Fed wants to shift toward a more expansionary policy, it often announces that it is going to change the federal funds interest rate. The Fed controls the federal funds interest rate

• A) by imposing legal restrictions that prohibit exchanges at interest rates other than the ones designated by the Fed.
• B) by having the U.S. Treasury fix this interest rate
• C) through its policy of open market operations.
• D) by altering the size of the federal budget deficit or surplus.

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Definitions:

Incremental Cost

The additional cost associated with producing one more unit of a product or service.

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, maintenance, and factory management salaries.

Process Further

The decision-making process regarding additional investments in products or processes beyond the initial production stage to increase value.

Incremental Revenue

The additional revenue generated from a particular action or decision, compared to a scenario where the action was not taken.