Suppose the Fed's Primary Goal Is Price Stability and It

question 93

Multiple Choice

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%. If the inflation rate rose above 2%, what should it do?

• A) pursue an expansionary monetary policy
• B) pursue a contractionary monetary policy
• C) reduce the required reserve ratio
• D) impose a temporary ceiling on the federal funds rate

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Definitions:

Treasury Bills

Short-term government securities issued at a discount from the face value and mature at par.

Historical Returns

The past financial performance of an investment, often presented as an average annual return rate over a specific time period.

Small Firms

Companies with a smaller market capitalization, often characterized by higher potential growth and higher risk.

Large Firms

Companies that have a significant market capitalization, often characterized by a large amount of assets, revenues, and employees.