If the Fed Adopts an Expansionary Policy That Is Based

question 120

Multiple Choice

If the Fed adopts an expansionary policy that is based on a misreading of the current economy, the Fed may be _____

• A) lowering the federal funds rate when a more appropriate course would be to raise it.
• B) lowering the federal funds rate when a more appropriate course would be to lower it.
• C) raising the federal funds rate when a more appropriate course would be to raise it.
• D) raising the federal funds rate when a more appropriate course would be to lower it.
• E) raising the federal funds rate when a more appropriate course would be to leave it unchanged.

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Definitions:

Municipal Bond Interest

The interest income received from bonds issued by local or state governments, often exempt from federal income tax and sometimes from state and local taxes.

Book Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life for accounting purposes, as reflected in the financial statements.

Warranty Expense

Costs incurred by a company for repairing, replacing, or refunding products under warranty, considered a contingent liability until incurred.

Unrealized Loss

A loss that results from holding onto an asset that has decreased in price, but has not yet been sold.