In the Short Run, If the Fed Wants to Raise

question 101

Multiple Choice

In the short run, if the Fed wants to raise the federal funds rate, it

• A) instructs large commercial banks to sell government securities in the open market.
• B) instructs the New York Fed to sell government securities in the open market.
• C) tells large commercial banks to raise their interest rates.
• D) instructs the New York Fed to sell government securities in the foreign exchange market.
• E) instructs the New York Fed to buy government securities in the open market.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of goods and services produced in an economy at constant prices.

Business Quarters

Divisions of the fiscal year into four equal parts, typically three months each, used by businesses to report earnings and assess performance.

Demand-Pull Inflation

An economic condition where prices rise because the demand for goods exceeds supply.

Cost-Push Inflation

Inflation caused by an increase in the cost of production, such as higher raw material costs, which is passed on to consumers in the form of higher prices.