A Nominal GDP Rule Requires the Fed To

question 236

Multiple Choice

A nominal GDP rule requires the Fed to:

• A) keep the money supply constant.
• B) keep the rate of money growth constant.
• C) adjust the money supply enough to make up for changes in velocity.
• D) adjust interest rates in the opposite direction of real GDP growth.

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Definitions:

Potential Output

The maximum level of economic productivity that can be maintained in the long run without causing inflation to rise.

Governmental Intervention

Actions taken by a government to affect the economy, which can include regulations, subsidies, and taxes.

Discretionary Policy

Economic policies based on judgment decisions by policymakers, as opposed to rules-based policies, to manage the economy.

Policy Tools

Policy tools are mechanisms used by government or monetary authorities to influence the economy, such as interest rates, taxation, and government spending.