If the Federal Reserve Announces That Its Target for the Federal

question 53

Multiple Choice

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

• A)As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation.
• B)As long as the Fed's announcement is credible,workers and firms will reduce their consumption and investment spending,which will reduce aggregate demand and reduce inflation.
• C)If the Fed's announcement is not credible,workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending,which will increase aggregate demand and reduce inflation.
• D)Workers and firms will incorporate the increase in interest rates into their expectations of inflation,and they will expect inflation to rise as a result of Fed's policy announcement.

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Definitions:

Cognitive Structures

The mental frameworks and concepts that individuals use to organize and interpret information.

Gender Schemas

Cognitive frameworks that organize information related to gender, influencing how individuals perceive and interact with their social world.

Psychodynamic

A psychological theory or approach that emphasizes unconscious psychological processes (e.g., wishes, fears) and contends that childhood experiences are crucial in shaping adult personality.

Cultural

Pertaining to the customs, arts, social institutions, achievements, and manifestations of a particular nation, people, or other social group.