"As the Fed Chases Inflation, Critics Shout, 'Faster!'" "For Weeks

question 30

Multiple Choice

"As the Fed Chases Inflation, Critics Shout, 'Faster!'" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "...the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake."
www.nytimes, 7/1/2004
As a result of the Fed's policy, which of the rates will increase?

• A) the long-term interest rate
• B) the short-term interest rate
• C) the exchange rate
• D) All of the above answers are correct.

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Definitions:

Corporate Taxes

Taxes imposed on the income or profit of corporations and other business entities by the government.

Treasury Bills

Short-term government securities issued at a discount from the face value and maturing at their face value.

Hyperinflation

Economic situation characterized by soaring prices.

Soaring Prices

A situation where the prices of goods and services rise rapidly and to unusually high levels.