The Case for Federal Reserve Independence Does NOT Include the Idea

question 17

Multiple Choice

The case for Federal Reserve independence does NOT include the idea that

• A)political pressure would impart an inflationary bias to monetary policy.
• B)a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level.
• C)policy is always performed better by an elite group such as the Fed.
• D)a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.

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Definitions:

Kinked Demand Curve

A perceived market demand curve that suggests prices will rapidly decrease if a firm raises its prices above those of its competitors, but will not increase significantly if the firm lowers prices.

Marginal Revenue

The additional income received from selling one more unit of a good or service, crucial for decision-making regarding output levels.

Average Cost

The cost per unit produced, computed by dividing the total of fixed and variable costs by the quantity of units produced, synonymous with average total cost.

Concentration Ratio

An indicator used to measure the degree of market concentration, often defined by the market share of the largest firms within an industry.