Since 2002, the Fed Has Shifted to Expansionary Monetary Policy

question 44

Multiple Choice

Since 2002, the Fed has shifted to expansionary monetary policy, then to restrictive policy, and then back to expansionary monetary policy. Policy shifts of this type are most likely to

• A) promote economic stability and stimulate employment.
• B) keep the general level of prices relatively stable because the periods of restrictive policy will just offset the periods of expansion.
• C) help promote economic stability because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly.
• D) promote instability because the time lags of monetary policy are long and variable.

Understand supply-side economics objectives and criticisms.

Recognize the significance of constant money supply growth as advocated by some economists.

Grasp the concept of rational expectations in economic policy-making.

Understand the inherent stability of the private sector as perceived by monetarists.

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Definitions:

Inflation Rate

The velocity at which prices for everyday goods and services climb, leading to diminished purchasing capability.

Exchange Rate

The value of one country's currency in terms of another currency or currencies.

Spot Rate

The current market price at which a particular asset, such as foreign exchange, is bought or sold for immediate delivery.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or real yield on an investment.