If the Fed Raises Its Target for the Federal Fund

question 191

Multiple Choice

If the Fed raises its target for the federal fund rate,this indicates that

• A)the Fed is pursuing an expansionary monetary policy.
• B)the Fed is pursuing a contractionary monetary policy.
• C)the Fed is attempting to combat deflation.
• D)The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP.

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Definitions:

Price Elasticity

The evaluation of demand's reaction to fluctuations in the price of a particular good.

Responsiveness

The degree to which a variable responds to a change in an underlying factor, often used in economic contexts to describe changes in supply, demand, price, etc.

Price Elasticity

A measure of how much the quantity demanded or supplied of a product changes in response to a change in its price.

Inelastic

A description of a situation where the quantity demanded or supplied changes by a smaller percentage than the changes in price.